Inspiring
people to do
Annual Report and Accounts 2022
THE
WORKS
TheWorks.co.uk plc Annual Report and Accounts 2022
Our ambition; to become one
of the most loved retailers in the UK –
the go-to place for reading, learning,
creativity and play.
Contents
Strategic report
Highlights 01
Our purpose 02
Our investment case 03
At a glance 04
Chair’s statement 06
Chief Executive’s review 08
Our business model 12
Our marketplace 14
Our strategy and progress 16
How we measure performance 18
Financial review 19
Our stakeholders 24
Section 172 statement 26
ESG review 28
Risk management and
principal risks and uncertainties 39
Viability statement 45
Corporate governance
Chair’s governance introduction 47
Board of Directors 48
Corporate governance report 50
Audit Committee report 54
Nomination Committee report 58
Directors’ remuneration report 60
Remuneration policy 64
Annual report on remuneration 72
Directors’ report 81
Statement of Directors’ responsibilities 84
Financial statements
Independent auditor’s report 85
Consolidated income statement 92
Consolidated statement
of comprehensive income 93
Consolidated statement
of financial position 94
Consolidated statement
of changes in equity 95
Consolidated cash flow statement 96
Notes to the consolidated
financial statements 97
Company statement
of financial position 126
Company statement
of changes in equity 127
Notes to the Company
financial statements 128
Advisers and contacts IBC
Highlights
Operational highlights
•
Delivered a strong trading performance in FY22, well ahead
of pre-COVID-19 levels, with total gross sales up 44.7% compared
with FY21 and 12.7% compared with FY20.
•
Defined the Group’s new purpose and brand positioning,
inspiring reading, learning, creativity and play - making lives
more fulfilled. This provides a common goal to show everybody
at The Works that they have a role to play in delivering our
‘better, not just bigger strategy’.
•
Created a more appealing, more customer-focused product
proposition, aligned to our purpose. This included overhauling
our book strategy to stock more front-list titles, capitalising on
the ‘BookTok’ trend and increasing ranges of popular branded
products in our kids and board games ranges.
•
Catered for increasingly ‘time poor’ customers, who seek greater
product availability and faster delivery times, by improving our
online fulfilment capacity and delivery options.
•
Improved the quality of the store estate by opening five new
stores, closing seven and relocating six. We undertook 16 store
refits as part of our strategy to refresh the store estate, as well as
enhancing the in-store experience for customers through better
space planning, ranging and merchandising.
•
Further strengthened our senior leadership team with the
appointment of a new Commercial Director and new ‘Heads
of’ in our Buying, Brand Marketing, Digital Marketing and Profit
Protection functions.
•
Maintained our high levels of colleague engagement and
13th place on the Best Big Companies to work for ranking.
•
Brought forward a review of the dividend and proposed
the payment of a final dividend of 2.4 pence per share
in respect of FY22.
Visit our website
corporate.theworks.co.uk
Financial highlights
Revenue
£264.6m
FY21: £180.7m
Like-for-like (LFL) sales growth
1
+10.5%
FY21: +6.0% Stores +120.9% online
Adjusted basic EPS
13.9p
FY21: (4.9p)
PBT
£10.2m
FY21: (£2.8m)
Dividend
2.4p
FY21: nil
Basic EPS
14.0p
FY21: (3.7p)
Non-IFRS 16 Adjusted EBITDA
£16.6m
FY21: £4.3m
Adjusted PBT
£10.1m
FY21: (£3.6m)
1 The LFL sales increase has been calculated with reference to the FY20 comparative sales figures, or two-year LFL, because the extended periods of
enforced store closures during FY21 prevent that period from forming the basis of meaningful comparisons. For the last five weeks of the period, it has
been necessary to calculate the LFL percentages with reference to the corresponding weeks in FY19, because the equivalent weeks during FY20 were
also affected by the first period of enforced store closures. Similar comparison periods are also used for the total gross sales growth figures quoted.
TheWorks.co.uk plc Annual Report and Accounts 2022 01
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Our purpose
Better, not just bigger.
Our purpose and strategy aim to bring our well-loved brand to life
and make The Works ‘better, not just bigger’.
To inspire reading, learning, creativity and play - making lives more fulfilled.
Our purpose:
Underpinning this purpose:
Brought to life by our family of colleagues who are:
Fulfilled by our brand that is:
Helping us to fulfil our ambition of becoming one of the most loved retailers
in the UK - the go-to place for reading, learning, creativity and play.
Fun
Empowering
Creative
Confident
Friendly
Value-led
We want reading, learning,
creativity and play to be
ACCESSIBLE TO EVERYONE,
affordable, convenient
and inclusive.
We believe in the
importance of FUN AND
FULFILMENT, taking time out
to do the things you love.e.
We want to be the GO-TO
PLACE to inspire customers
to embrace their free time. .
Crafty
Caring
Can-do
Read more about our strategy on pages 16 and 17.
Read more about our culture on page 34.
TheWorks.co.uk plc Annual Report and Accounts 202202
A differentiated offering with
significant organic growth
potential in the value retail sector.
Our investment case
1.
Clear purpose – to inspire reading,
learning, creativity and play -
making lives more fulfilled.
5.
Cash generative, low capex business model.
2.
Unique proposition – cheaper than
specialists, more choice of products and
better customer service than discounters.
6.
Simplicity over complexity - strategy
focused on implementing best retail
practice, as opposed to costly,
high-risk concepts.
3.
Broad demographic appeal (gender,
age, ethnicity, income) creates a large
addressable market.
7.
Previous under-potentialisation creates real
opportunity for growth (sales and profit).
4.
Flexible store estate - small inexpensive
shop units work well in a variety of
locations serving local communities,
and provide touch points not available
to pure-play online retailers, (e.g. click
& collect), and short leases allow for
changes in local market conditions.
8.
Significant headroom to develop online
sales (to c.20% of total sales in the
medium-term) supported by extended
ranges and initiatives to increase customer
engagement and loyalty.
TheWorks.co.uk plc Annual Report and Accounts 2022 03
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
At a glance
A leading multi-channel
value retailer.
At The Works we believe in giving everyone the opportunity to learn, be inspired and have fun.
Our mission; to become one of the most loved retailers in the UK. Our core foundations of great value,
fantastic ranges and excellent customer service are at the heart of our 525 stores and website.
We make reading, learning, creativity and play accessible to everyone.
Our 525 stores can be found
in a diverse range of locations:
on high streets, in shopping centres,
on retail parks, in factory outlets
and as concessions (typically in
garden centres).
Our stores play an important role in
inspiring reading, learning, creativity
and play in their local communities,
along with supporting local
fundraising activity.
525
stores in the UK and Ireland
Store estate
We are one of the few value retailers
with a full-featured online store
that helps our customers to shop
how they want, when they want,
seven days a week.
Our website complements our stores,
offering many exclusive products that
are not available in store, and our
popular click & collect service offers
further convenience
to customers.
1,000+
web exclusive products
41.5 million
website visits during FY22
Multi-channel Colleagues
Our loyal, dedicated and highly
engaged colleagues are key to
the success of our business.
Ranked
13th
Best Big Company to Work for
the second consecutive year
c.3,800
colleagues
Read more about our
colleagues on page 34.
TheWorks.co.uk plc Annual Report and Accounts 202204
Our brands and products
Toys & games
Toys & games covers both kids and family games. It is
a ‘one-stop shop’ for a range of kids’ favourites, from
the latest crazes to a wide range of toys, jigsaws and
big brand games. This zone also features our important
education range supporting children’s development.
We have a wide product offering, which is designed to appeal to our broad customer base.
This includes our own brand products, which support our value offering and enable us to provide
our customers with products that are exclusive to The Works. We also offer the most in-demand
branded products across our categories and new books on their release date.
Arts, crafts and hobbies
Our Arts, Crafts and Hobbies Zone comprises a wide
selection of paints, brushes, art sets, paper, canvas
and craft kits that cater for the needs of beginners
to experts, alongside a complementary book offer to
further inspire our artistic and crafty customers. Our
buying expertise allows us to offer fantastic value for
money across the whole range and is further supported
by a well curated range extension online.
Our own brands
Our own brands
Our own brands
Our own brands
Stationery
Our stationery selection includes our own- brand Paper
Place high-quality fashion notebooks, writing sets,
storage boxes and address books. These sit alongside
our big brands offer including Bic, Helix, Xerox and Pukka.
Our Scribblicious range includes trendy pens, pencils,
pencil cases, and storage solutions suitable for all ages.
Seasonal
We offer customers everything they may need to
make family occasions and seasonal events really
special including ‘back to school’, summer fun,
Easter and Christmas.
Books
We have refined our book ranges, becoming a
destination for kids books, growing brands in each age
range, with a brilliantly priced, curated range of the
very latest trending non-fiction adult books.
c.6,000 products available in store c.400 ‘core’ lines permanently in stock
TheWorks.co.uk plc Annual Report and Accounts 2022 05
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Chair’s statement
Over the course of the last year
I have seen The Works become
an increasingly modern and
efficient business.
Introduction
I have greatly enjoyed my first year as Chair of The Works and feel
very proud to be part of a business that seeks to enrich the lives
of its customers and their families, friends and communities. I have
spent a lot of my time getting to know the business, meeting the
teams and celebrating too, having joined during The Works’ 40th
anniversary year.
I have been impressed by the resilience of the business and its
ability to adapt to challenging external conditions, whilst also
delivering good strategic and financial progress. Over the course
of the last year I have also seen The Works become an increasingly
modern and efficient business that is being run, for the long-term
and in a more professional and structured way by Gavin Peck
and his strengthened leadership team. I have seen time and time
again exactly why its customers have such a strong affinity to the
brand, how it is managing to maintain its position as one of the
leading retailers in the value sector and how it has sustained a
well-earned reputation for being an incredibly supportive workplace
for colleagues.
A standout feature of The Works is its truly unique culture. It is
one of the greatest strengths of the business and has developed
as a result of strong leadership, a positive work environment
and a shared passion for delighting customers. Clarifying the
Group’s purpose – to inspire reading, learning,creativity and play
- making lives more fulfilled. – has already had a positive effect on
colleagues across the business by helping them to understand the
role they can play in inspiring our customers and supporting our
communities. Given the current external environment, our purpose
has never been more relevant. It is vital that we help our customers
to be resourceful, show them how to get creative and that having
fun doesn’t need to be costly or excessively consumptive.
This has all been spearheaded by a strengthened leadership
team, led by Gavin, and supported by a team of passionate and
committed colleagues. On behalf of the Board I would like to thank
colleagues for all they have done, and continue to do, for our
business and stakeholders, and for constantly going above and
beyond to care for one other.
Performance
All retailers have faced difficult external conditions over the past
year, particularly the increased costs and disruption caused by
the global supply chain challenges post COVID-19. The Works
was also subject to a cyber-security incident in March which
required swift and extensive action to be taken to protect the
business and minimise the impact on trading. Each of these factors
in isolation would be enough to test any retailer, let alone both
in one year. However, despite the adverse impacts from these
events, due to the groundwork that Gavin and colleagues laid
before the pandemic, an improved customer proposition and
effective execution of our strategy, the business was able to deliver
a strong trading performance in FY22, which was well ahead
of pre-pandemic levels. Revenue increased to £264.6m (FY21:
£180.7m), profit before tax increased to £10.2m (FY21: loss before
tax of £2.8m) and the business delivered another record Christmas,
demonstrating its resilience in very challenging circumstances.
TheWorks.co.uk plc Annual Report and Accounts 202206
Strategy
The last year has also demonstrated that the refocused ‘better,
not just bigger’ strategy, which is already delivering tangible results,
is the right strategic direction for the business. If we continue making
progress against each of our four strategic pillars the Board and I are
confident that we will see more new customers choose The Works
as their primary destination for products to read, learn, create and
play and that we will earn increased customer loyalty from existing
customers. We will also be very well positioned to deliver sustainable
sales and profit growth in the medium-term and to create value for
all our stakeholders.
Environmental, Social and Governance (ESG)
The Works has been increasingly focused on its ESG agenda in
recent years and has developed three pillars to provide greater
clarity and structure, as well as a steering group to drive progress
in these areas (see page 28). The business has now laid the
foundations for a more ambitious and systematic approach
to ESG and made some good early progress, but more work
needs to be done. In particular we need to develop a detailed
programme of activities and agree metrics to measure progress
and targets to reduce our environmental impact. We must also
implement the necessary changes to ensure that our reporting
is consistent with the recommendations of the Task Force on
Climate-related Financial Disclosures. The Works’ governance
structure is effective and the business has a good track record in
protecting its people and supporting its communities; however,
there are plenty of opportunities to enhance these areas further,
for example by promoting greater diversity and inclusion across the
business. Our colleagues have shown a desire to engage more in
our ESG position and already play a role in supporting their local
communities, fundraising for our charity partners and protecting
the environment, for example through recycling and donating old
stock to schools and charities. They are by nature enthusiastic,
crafty and resourceful, so will play an important part in driving
progress against our ESG pillars.
Dividend
As part of some prudent measures to strengthen the balance sheet
and manage the cost base and cash flows during the COVID-19
pandemic, dividends were suspended in FY20 and FY21. Reflecting
the Group’s strong performance in FY22, and its future potential, the
Board has brought forward its review of the dividend and is proposing
the payment of a final dividend of 2.4 pence per share in respect
of FY22, subject to shareholder approval at our AGM on 27 October
2022, and will look to maintain the cadence of twice yearly dividend
payments thereafter. Whilst the consumer market remains especially
volatile, we will review future payment levels based on prevailing
conditions, but intend to resume a progressive dividend policy in due
course once conditions stabilise.
Outlook
Our success this year reflects the ongoing appeal of our
proposition and the resilience of our business and was achieved
despite some significant external challenges. In the current
economic environment, characterised by ongoing inflationary
pressure and subdued consumer sentiment, our value proposition
is more relevant than ever. We are confident that the Group will
continue to make good strategic progress in the year ahead and
will deliver growth in the medium term, albeit that the underlying
Adjusted EBITDA result for FY23 will be lower than in FY22.
Carolyn Bradley
Chair
23 September 2022
Q&A with Carolyn
You have now been in your role for a
year. What are the key things that have
stood out?
Having spent many years working in retail and
consumer businesses, I have experienced a
variety of cultures and The Works truly is one of a
kind. I have had the opportunity to visit a number
of our stores and meet our colleagues. They are
passionate about what they do and committed
to serving our customers. We also have a clear
set of values that are helping to nurture a culture
which was already strong. And within the UK
retail sector, we have a unique, affordable and
accessible product offering, which given the
current cost of living crisis I am confident will
be more important than ever before.
Is the strategy likely to change?
No. We have a clear plan built around four
key priorities that will support value creation
for all stakeholders and enhance our business.
This strategy is being effectively executed by
our leadership team and it is already starting
to deliver in a number of areas, particularly
in improving our customer proposition.
What are your priorities for the
coming year?
As we monitor the Group’s strategic progress,
my fellow Board members and I will continue to
focus on ensuring that The Works remains the
destination for great value products to inspire
reading, learning, creativity and play. We have
an unrivalled customer loyalty programme and
I have seen first hand how effectively these
schemes can drive growth. We must capitalise
on our Together Loyalty Rewards programme,
which already truly engages and delights our
customers. More generally we must increase
our focus on our ESG agenda, particularly our
environmental strategy. We recognise that
we have a role to play in the transition to net
zero and, from a commercial perspective,
we need to be able to respond to increasing
customer demand for more sustainable products
and packaging.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 07
Chief Executive’s review
Introduction
Our financial year started shortly after we emerged from a lengthy
period of COVID-19 lockdowns, with stores having just re-opened.
Our customers were delighted to be able to shop with us in store
again, and it was a real boost to see colleagues back doing the
job they love and the retail sector starting to recover from a period
beset by disruptions. I am pleased to report that despite the
significant challenges arising from global supply chain disruption
and a cyber security incident towards the end of the financial
year, we delivered a strong financial performance and made good
strategic progress in FY22. This was due to our colleagues, who
were ready to serve our customers on their return and continued to
show incredible resilience, team spirit and passion for the work they
do. On behalf of the leadership team I would like to thank them for
all their ongoing support. This year has demonstrated the resilience
of the business; I am proud of all that we have achieved and remain
confident about the future prospects for The Works.
Despite facing significant
external challenges through
the year we delivered a strong
financial performance and
made good strategic progress
in FY22.
Our purpose
The Works’ proposition, which resonated particularly well with
customers during the pandemic, really strengthened over the
course of FY22. To underpin the evolution of our brand, we felt the
time was right to redefine our purpose. This purpose is ‘to inspire
reading, learning, creativity and play – making lives more fulfilled’.
This will help focus our colleagues on a common goal and show
everybody at The Works that they have a role to play as part of
our strategy to make our business better, not just bigger. Having
now succinctly articulated why we exist the next step is to fully
embed this purpose across the business. We believe it will have
a truly transformational effect on our performance over the next
three years.
Trading performance and financial results
The Works delivered a strong trading performance in FY22, well
ahead of pre-COVID-19 levels, demonstrating the strong execution
of our strategy. Our first half performance was ahead of our
expectations and in H2 FY22 we delivered a record Christmas
despite uncertainty over the impact of the Omicron variant and the
ongoing supply chain challenges faced by the sector. Trading in
the second half remained positive, although, as expected, the rate
of growth began to slow in the latter months of the period, primarily
reflecting the impact of an increasingly challenging consumer
environment, and also a cyber security incident towards the end
of FY22. Overall, total gross sales for the period were £298.4m,
an increase of 44.7% compared with FY21 and 12.7% compared with
FY20
1
. Two-year LFL sales increased by 10.5%, with growth online
and in stores.
This positive trading performance was driven by our ‘better, not just
bigger’ strategy. This included a greater focus on products that
inspire and delight our customers such as front-list books, branded
products and extended online product ranges, which engaged
existing customers and attracted new ones to shop with us, both
in store and online. Our flexible business model also enabled us
to capitalise on trends like the ‘summer of staycations’, Fidget
Frenzy and BookTok, which boosted sales of the most in-demand
products during the year.
1 See separate footnote (1 and 2) of the LFL table in the Financial Review on
page 20 which describe the basis for calculating 2-year sales comparisons.
TheWorks.co.uk plc Annual Report and Accounts 202208
Retail is a sector in which challenges arise constantly but two
notable ones arose during the year, which we would not expect to
recur and are therefore worth highlighting:
1. Supply chain disruption and ongoing uncertainty surrounding
possible COVID-19 related restrictions saw some Christmas
trade brought forward into September and October. Our
proactive management of the supply chain ensured that we
had adequate stock overall, despite some of it arriving later
than planned, which meant that, although the sales pattern
pre-Christmas was different than in previous years, and sub-
optimal compared to our plans, we were still able to deliver a
record Christmas performance.
2. We also experienced a cyber-security incident at the end of
March 2022, which for a short time impacted our till systems,
replenishment deliveries to stores and delayed the fulfilment
of online orders. We took swift action to protect the business,
which dealt with the immediate threat and enabled us to
continue trading online and from more than 95% of our stores.
Although the initial impact on trading was minimal, our
operational recovery, which also included making significant
improvements to security arrangements, took longer than
expected, and resulted in a residual impact on sales into the
early part of FY23.
Profit performance improved significantly, with FY22 EBITDA
increasing to £16.6m (FY21: £4.3m). Our improved sales performance
and the operational and propositional improvements we have
made throughout the year helped to offset the cost impact of
the external headwinds highlighted above, which were partially
offset by £5.8m of COVID-19 business rates relief. On a statutory
basis, profit before tax increased to £10.2m (FY21: loss before tax
of £2.8m).
Strategy
At the FY21 Preliminary Results we announced an evolution of
our strategy, to be a ‘better, not just bigger’ version of ourselves.
Since then we have made good strategic progress, both behind the
scenes to improve our operations, and efficiency, as well as more
visible changes to sharpen the proposition, improve our stores, our
product ranges and how we interact with our customers. We have
also strengthened the management team and senior leadership
across the business to support the successful execution of our strategy.
Each change made, when considered in isolation, will have
a relatively limited impact on our future performance but
collectively the changes we have made across the entire business
will, we believe, be truly game changing for The Works. These
improvements have already helped to drive top and bottom-line
growth in FY22 and we believe that if we continue to make good
progress against this strategy it will significantly increase sales and
will generate much more sustainable returns in the long-term.
Enhancing our product offering
Our affordable and accessible product offering
continues to grow. To complement our own
product range we have introduced over 100 new
top brand and licensed toys and games including
Crayola, Orchard Toys, Peppa Pig and Paw
Patrol. We are also expanding our front-list book
ranges (new books that are available on their
release date). This development has enabled us
to capitalise on the ‘BookTok’ phenomenon, draw
attention to previously best-selling books and
prompt renewed customer interest in them.
Read more about our strategy
on pages 16 and 17.
Strategy in action
Develop our brand and increase
customer engagement
Our strategic pillars
Enhance our
online proposition
Optimise our
store estate
Drive operational
improvements
Develop our
brand and
increase customer
engagement
THE
WORKS
Outlined below is an overview of each of the four pillars of our
strategy, progress made against them during FY22, and our
priorities for the year ahead.
Develop our brand and increase our customer engagement
In line with our purpose, we are improving our customer proposition
to help build deeper relationships with our existing customers, drive
increased brand loyalty and inspire and attract new customers.
In FY22 we:
•
clarified our purpose to better reflect what we do every day.
Articulating why we exist has helped give all colleagues the
same ‘north star’ and is ensuring that everything we do is
focused on The Works customers;
•
evolved our brand to create a new, more modern look and
began to focus our communications on inspiring customers;
•
recruited a new Commercial Director to drive forward our customer
proposition and further strengthen the Commercial function;
•
recruited a new Head of Brand to improve our brand marketing
and customer communications, engagement and loyalty; and
•
made significant progress in improving our offer by taking a more
strategic and customer-focused approach to range selection.
Our great value proposition is already well recognised and
as a result of the action we have taken this year we are now
becoming customers’ go-to destination for reading, learning,
creativity and play. We have achieved this by:
•
overhauling our book strategy, stocking many more front-list
titles such as David Walliams’ Gangsta Granny Strikes Again
and Richard Osman’s The Man Who Died Twice. This is helping
to increase our market share in the book category, improve
our credibility as a bookseller and also drive sales of, great
value, back-list titles which can still represent significant
sales opportunities;
Read more about
our strategy
on pages 16 and 17.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 09
Chief Executive’s review continued
Develop our brand and increase our customer
engagement continued
•
capitalising on the BookTok trend. Our flexible business model
and strengthened relationships with publishers enable us to
respond to trending books highlighted on TikTok and provide
customers with the most in-demand books at great value;
•
increasing our ranges of popular branded products in our
Kids Zone, such as Peppa Pig, Paw Patrol and Cocomelon,
and board games including Scrabble, Articulate and Elf Monopoly.
In FY23 we will focus on:
•
developing our marketing strategy, deploying our evolved
brand and refreshed look to inspire and engage with customers
more effectively;
•
ensuring our products and ranges align with our purpose - to
inspire reading, learning, creativity and play – making lives
more fulfilled;
•
further developing our product offering, including extending our
range of Children’s books (including front-list authors such as
Julia Donaldson being introduced) and refreshing our own-brand
Art, Craft and Stationery ranges;
•
using data and insight more effectively so that we develop
a better understanding of our customers and their
preferences; and
•
relaunching our Together loyalty programme, which has enormous
untapped potential, given the relatively low levels of penetration
of the scheme (c13% of transactions in FY22).
Enhance our online proposition
We strive to become customers’ go-to destination for reading,
learning, creativity and play. We believe that our online channel
will be an important part of achieving this ambition given the role
it can play in providing inspiring content and convenient shopping.
We invested in a new web platform in July 2020 which provided the
foundation for us to subsequently invest significantly in our online
fulfilment capacity and in shortening delivery times. Our online
capability is now more efficient and better able to meet increasing
customer demand.
In FY22 we:
•
improved our fulfilment capacity and delivery capabilities for
increasingly ‘time poor’ customers, who seek greater product
availability and faster delivery times. We extended our next day
delivery cut-off from 8pm to 11pm and reduced our standard
delivery window from three to five days to a guaranteed three days;
•
further enhanced our complementary online ranges, focusing
particularly on expanding online ranges of larger items in our
Out2Play range, which performed well during the ‘summer of
staycations’ in 2021, as well as offering a greater selection of
front-list books, branded toys and games;
•
started to optimise our new platform. For example, we have
improved the navigation across key product and category
pages to help customers find product matches and introduced
browse attributes to reduce clicks required to purchase; and
•
recruited a Head of Digital Marketing to develop and implement
campaigns across new channels, improve efficiency, help attract
more people to our website and improve our CRM.
In FY23 we will focus on:
•
further enhancing the online customer experience, including
undertaking a usability study to better understand the customer
journey and key friction points. Alongside the outputs of this
review we will improve the merchandising of products on the
site and navigation through the site, supported by better
analytics and the introduction of new tooling, including multi-
variate testing;
•
launching more targeted online range extensions, building on
improvements made in our front-list book, branded toys and
games offers in store;
•
Introducing Parcelshop as an alternative delivery option, adding
c11,000 additional pick-up points, improving convenience for our
customers;
•
Engaging and retaining more customers through our digital
marketing, including building a team to strengthen our
in-house capabilities; and
•
Improving the customer experience between stores and online
by making it possible for customers to order from the website
when shopping in store and performing an end-to-end review
of our click and collect journey.
Optimise our store estate
We already have a strong footprint across the UK and Ireland,
with stores conveniently located on high streets, in retail parks,
and concessions within garden centres. The broad appeal of
our proposition and low-cost model of our stores, which tend to
be smaller than those of our competitors, allows us to operate in
such locations which often do not suit more specialist retailers.
As a result, in these locations, there is often very little direct high
street competition.
Our main priority is to optimise our stores to create an environment
that inspires our customers, reflects the communities we serve and
encourages more shoppers to consider The Works as their primary
destination for the products we offer.
In FY22 we:
•
further improved the quality of the store estate, opening five new
stores, closing seven and relocating six. Our opening in Bluewater,
one of the UK’s most high-profile shopping centres, was a
particular highlight. As of 1 May 2022 we traded from 525 stores;
•
undertook 16 store refits as part of our strategy to refresh the
store estate and bring all stores up to an ‘ideal’ standard
over the next three years. These refits will improve customer
experience by modernising the store shopping environment and
improving the store layout, whilst also making the stores easier
to run operationally; and
•
enhanced the in-store experience through better space
planning, ranging and merchandising. We also improved
customer experience and made our stores easier to shop, for
example through better navigation and ensuring that all stock
is at an easily accessible height.
In FY23 we will focus on:
•
continuing to grow our brand awareness with selective new store
openings, focused on the top 100 locations that we are not yet
represented in;
•
optimising our existing stores through relocations and refits,
with 40 stores expected to benefit from this activity;
•
further improving our use of space in store to enhance
the customer experience and drive improved sales
densities, supported by the introduction of new space and
merchandising software;
•
increasing our focus on offering excellent customer service in-
store, through improved training and continuing to simplify the
way we operate our stores to reduce other tasks.
Drive operational improvements
Improving our ways of working to become a more productive and
modern retailer is a core part of our ‘better, not just bigger’ strategy.
We want to ensure we operate efficiently and in a cost-effective
way, as well as providing better product choice and availability for
our customers. The progress we have made means that ‘behind the
scenes’ we are already operating more effectively, which we believe
will help to generate more sustainable returns in the future.
TheWorks.co.uk plc Annual Report and Accounts 202210
In FY22 we:
•
invested in our supply chain team and systems, making
improvements in our end-to-end stock management processes,
including successfully piloting a new stock allocation system that
will significantly improve on-shelf availability and drive improved
stock turn;
•
renewed our e-commerce logistics contract with iForce. The
renewed contract includes additional investment to fund the
introduction of automated picking robots and an automated
packing machine. This is expected to drive productivity, help
to offset the National Living Wage cost headwind in our online
fulfilment operation, whilst also reducing our waste packaging;
•
launched a trial to pick delivery orders directly from 29
stores, which was subsequently expanded to cover 60 stores,
significantly reducing the lead time from picking to delivery
and helping to improve on-shelf availability. This will be rolled
out to more stores in FY23 although most stores will continue to
receive deliveries via a third party network;
•
established a Profit Protection function with an initial focus on
reducing store stock loss (e.g. through identifying and reducing
high levels of theft);
•
selected a new electronic point of sale (EPOS) solution for
stores and began development of this new system ahead of
deployment later in FY23. This system replaces the outdated
system and provides a platform for introducing additional
functionality, for example self-service checkout and ordering
from our website whilst in store; and
•
accelerated the implementation of our existing plans to
strengthen IT security measures following the cyber-security
incident in March 2022.
In FY23 we will focus on:
•
rolling out our new stock allocation system across our entire
store estate;
•
extending our scheme to pick delivery orders directly from more
stores across the estate;
•
deploying the new EPOS solution across the store estate,
including the functionality to order online whilst in-store;
•
reducing store stock loss through the execution of our profit
protection plans, including driving a colleague awareness
programme, better utilising data to identify stores with high
stock losses and targeting increased activity on these higher risk
stores; and
•
adopting a continuous improvement approach in relation to all
operational processes across the business.
Colleagues
In a challenging and competitive retail environment, our colleagues
are fundamental to the delivery of great customer service. Many
retail businesses makes this claim, but we believe that The Works is
unique and fortunate to have a team of colleagues who truly believe
in our purpose and are passionate about the job they do. Attracting,
developing, retaining, and engaging good people are key to our
success and I was very pleased that we have maintained our
position on the Best Big Companies to Work for National List, ranking
13th place.
During the year we have strengthened the leadership team
through the creation of a number of new roles. Nina Findley, our new
Commercial Director, joined the Operational Board in June 2021.
Nina has over 20 years’ buying experience in highly relevant markets,
having spent her early career with Woolworths and Superdrug and
more recently holding a variety of senior roles at Homebase. During
the period we also strengthened our senior leadership team with
the appointment of new ‘Heads of’ in our Brand Marketing, Digital
Marketing, Buying and Profit Protection functions.
We remain focused on further enhancing the engagement and
development of our colleagues with further exciting initiatives
planned for FY23, including introducing a new Communication
and Rewards platform (‘MyWorks’) and a new learning and
development system (our ‘Can Do Academy’).
Building brand loyalty
In the retail value sector our Together Rewards
loyalty programme sets us apart. Currently over
1 million active members receive five points for
every pound they spend, which are converted
into redeemable sales vouchers at one pence
per point. Recent research has shown that
programme members spend up to 33% more than
non-members, visit more often and recognise
and appreciate the benefits of the programme.
Read more about our strategy
on pages 16 and 17.
Strategy in action
Develop our brand and increase
customer engagement
Environmental, Social and Governance (ESG)
Having reviewed our approach last year and, as a first step, formed
a new ESG steering group we are increasing our focus on ESG
issues and defining our ESG commitments. Working to reduce our
impact on the planet and supporting our people and communities
is not only the right thing to do, it is a key issue for our stakeholders
and will also ensure that we stay relevant as customer demand for
more sustainable products continues to grow.
We are currently developing our sustainability strategy to ensure
that it addresses environmental issues whilst supporting our
growth. We are also engaged in a programme of work to ensure
our compliance with the recommendations of the Task Force on
Climate-related Financial Disclosures.
The Works has always been a business that gives back and
I am very proud of the fundraising efforts of our colleagues and
grateful for the generosity of our customers. Our commercial and
fundraising partnership with Cancer Research UK continues and
last year we were delighted to enter into a nationwide partnership
with MIND, SAMH and Inspire - three leading charities that do
incredible work to support people’s mental health.
Outlook
Overall, we are pleased with the performance delivered in FY22.
However, we are not immune from the current inflationary pressures,
which have increased business costs and we anticipate may weigh
on consumer spending levels over a much more sustained period
than initially expected. In this environment, our value proposition
is more relevant than ever, and we are confident that the Group
will continue to make good strategic progress in the year ahead
and will deliver growth in the medium term, albeit the underlying
Adjusted EBITDA result for FY23 will be lower than in FY22.
Gavin Peck
Chief Executive Officer
23 September 2022
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 11
Colleagues
•
Approximately 3,800 colleagues who are key
to the success of our business.
•
Loyal and dedicated.
•
Highly engaged.
Brand value
•
Own brands developed in house.
•
Clear purpose, focused on inspiring reading,
learning, creativity and play.
Suppliers
•
Over 500 supplier relationships.
•
The UK, Europe and Asia.
•
Close collaboration.
Infrastructure
•
Store network.
•
Online store.
•
Centrally located Support and
Distribution Centres.
•
IT infrastructure – investing to ensure scale,
efficiency and security.
Our business model
Our core strengths and competitive
advantage create a compelling
proposition capable of delivering
long-term value for all stakeholders.
Key inputs
Our proposition and how we create value
Underpinned by our strategy
Focused on evolution and growth, making our business
‘better, not just bigger’
Read more about our
colleagues on page 34.
Our competitive advantage
Value-led
Family friendly
Convenience
Loyalty
Multi-channel
Inspiring
15
own brands
10,000
new product lines
introduced each year
Design and innovate
•
Identify and bring desirable and
on-trend products to the UK market.
•
Unique own-brand products developed
by in-house design studio in conjunction
with suppliers.
•
New product lines launched
on a weekly basis.
•
Five clear product zones: Books; Arts
& crafts; Stationery; Toys & games;
and Seasonal.
Enhance our online
proposition
Develop our brand
and increase customer
engagement
TheWorks.co.uk plc Annual Report and Accounts 202212
Our people
Employment for
c.3,800
colleagues
13th Best Big Company to work for
Our customers
Offer affordable, accessible, good quality
products to inspire reading, learning,
creativity and play.
Our suppliers
Indirectly support employment across
our extensive supplier network.
Our community
£200k
fundraising in FY22 for Cancer Research UK,
Mind, SAMH and Inspire, and many other
local charities supported at store level
Our shareholders
£1.5m
final dividend proposed for the year
ended 1 May 2022
Our proposition and how we create value
Underpinned by our strategy
The value we create
Read more about
our strategy
on pages 16 and 17.
Sell to customers through convenient channels
•
525 stores across the UK and Ireland.
•
Website – 24/7 trading and exclusive
and extended ranges.
•
Marketplaces (e.g. Amazon, eBay).
•
Click & collect – linking
stores and online.
Source and distribute
•
Experienced buying team sources
and curates product ranges, including
popular brands to complement own-
brand offer.
•
Relationships with over 500 suppliers.
•
Work closely with suppliers to ensure
product safety and quality control.
•
Warehousing and store distribution
undertaken from 157,000 sq ft facility
in Coleshill, Birmingham.
•
Online orders fulfilled by third party
or picked in store.
•
Leading customer delivery proposition.
c.500
suppliers
157,000
sq ft warehousing and
distribution facility
525
stores
Together loyalty scheme
increases customer
engagement and provides
valuable customer insights.
Drive operational
improvements
Optimise our store estate
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 13
Our marketplace
We are uniquely positioned
in the value retail sector.
Our purpose, which is centred on inspiring our customers to read, learn, create and play,
sets us apart. We offer lower prices than the specialists and more choice and better
customer service than the discounters.
A number of market trends are affecting our business and shaping
our business model and strategy including:
Evolving shopping habits
While the surge in online retail seen during the pandemic is now
normalising, demand for convenient and enjoyable shopping
experiences continues to grow. In response our strategy is focused
on making the overall shopping experience as straightforward as
possible for customers shopping online and in store.
During the year we began optimising our new web platform to
improve navigation and shopability and generally enhance the
customer experience. We are also offering more targeted online
range extensions (e.g. larger outdoor toys that are difficult to
stock in our stores). We are also continuing to improve our in-
store experience by introducing better space planning, making
our stores easier to shop (e.g. by reducing the number of fixtures
and amount of stock on the shop floor) and enhancing our click
& collect channel.
The shift to more localised shopping that emerged during the
pandemic has continued and post-pandemic shopping in
locations such as city centre and high street stores has recovered
more strongly than expected. Our stores, which are located on
the high street, and in shopping centres, retail parks and garden
centres, are well positioned to benefit from this trend. They also
have a noticeable presence and are often heavily involved in
community activities including local charity fundraising.
Increased interest in hobbies and crafting activities
During the pandemic many people took up new hobbies or
revisited activities they had previously enjoyed. While demand for
some of these products (e.g. jigsaws) has naturally fallen from the
unusually high levels seen in the pandemic as consumers adapt
to a more normalised post-COVID-19 environment, it remains
well above pre-pandemic levels and by inspiring our customers
and focusing on providing them with the products they love at
an affordable price, we are confident we will retain our leading
market position.
Spending trends
In the current economic environment consumers are spending less
and they are seeking out good value quality products. Our price
proposition and overall offering positions us well and our strategy
is focused on fulfilling our ambition to become customers’ go-to
destination for inspiring, fun and affordable toys, books, stationery,
arts and crafts.
Responsible consumption
Consumers are becoming more aware of the environmental
impact of the things they buy and are seeking out more sustainable
options. While the extent to which consumers are willing to pay
higher prices to reduce their environmental footprint is less clear,
as a business we have a responsibility to reduce our environmental
impact. Information about the steps we are taking to do this is
included on pages 29 to 33.
Generals/variety Specialist
Premium/full price
Discount/value
Books Crafts
Stationery Toys
THE
WORKS
TheWorks.co.uk plc Annual Report and Accounts 202214
Capitalising on significant online
growth opportunities
During COVID we saw a step-change in our
online sales as customers discovered our site
during lockdowns. Although the market has
recently experienced a slowing in the rate of
growth in online shopping, our sales remain well
ahead of pre-COVID-19 levels. The Works online
channel is not fully potentialised and therefore
continues to represent an opportunity for growth;
as a result we will continue to enhance our
digital offering and drive improved customer
experience. During the year we expanded our
online product range to include paddling pools,
helium canisters and die cutting machines, all
of which, because of their size, are easier for
customers to buy online rather than in store.
We also invested to improve our click & collect
service and increase our fulfilment capacity.
Capitalising on
market trends.
The changing dynamics in our market are creating
growth opportunities. Our strategy ensures that
we effectively capitalise on these opportunities.
Strategy in action
Enhance our online proposition
Read more about our strategy on pages 16 and 17.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 15
Our strategy and progress
We are improving
and developing the
business to be better,
not just bigger.
Our strategic pillars
THE
WORKS
Enhance our online
proposition
We want to increase awareness of
our website and make it an inspiring
destination for customers by improving
our customer journey and making it
easy to use, inspiring and engaging.
Develop our brand
and increase customer
engagement
Through our brand and customer offer
we want to reach more customers and
improve the external view of The Works.
Optimise our store estate
Our aim is to create a store environment
that can inspire our customers and
reflects the communities we serve.
Drive operational
improvements
We aspire to improve our ways of
working to become a better and more
modern retailer. We want to ensure
we operate efficiently and in a cost
effective way.
TheWorks.co.uk plc Annual Report and Accounts 202216
Progress
•
Clarified our purpose to better reflect what we do every day.
•
Evolved our brand to create a new, more modern look and began
to focus our communications on inspiring customers.
•
Recruited a new Commercial Director to drive forward
our customer proposition and further strengthen the
Commercial function.
•
Recruited a new Head of Brand to improve our brand marketing
and customer communications, engagement and loyalty.
•
Made significant progress in improving our offer by taking a more
strategic and customer-focused approach to range selection.
Priorities for FY23
•
Developing our marketing strategy, deploying our evolved
brand and refreshed look to inspire and engage with
customers more effectively.
•
Ensuring our products and ranges align with our purpose – to inspire
reading, learning, creativity and play – making lives more fulfilled.
•
Further developing our product offering, including extending
our range of Children’s books and refreshing our own-brand Art,
Craft and Stationery ranges.
•
Relaunching our Together loyalty reward programme, which has
enormous untapped potential, given the relatively low levels
of penetration of the scheme (c13% of transactions in FY22).
Progress
•
Further improved the quality of the store estate, opening five
new stores, closing seven and relocating six.
•
Undertook 16 store refits as part of our strategy to refresh the
store estate and bring all stores up to an ‘ideal’ standard over
the next three years.
•
Enhanced the in-store experience through better space
planning, ranging and merchandising.
Priorities for FY23
•
Continuing to grow our brand awareness with selective new
store openings.
•
Optimising our existing stores through relocations and refits.
•
Further improving our use of space in store to enhance the
customer experience and drive improved sales densities.
•
Increasing our focus on offering excellent customer service in-
store, through improved training and continuing to simplify the
way we operate our stores to reduce other tasks.
Progress
•
Invested in our supply chain team and systems, making
improvements in our end-to-end stock management processes.
•
Renewed our e-commerce logistics contract with iForce.
•
Established a Profit Protection function.
•
Selected a new electronic point of sale (EPOS) solution for
stores and began development of this new system ahead
of deployment later in FY23.
•
Accelerated the implementation of our existing plans to
strengthen IT security measures following the cyber-security
incident in March 2022.
Priorities for FY23
•
Rolling out our new stock allocation system across our entire
store estate.
•
Extending our scheme to deliver directly to stores.
•
Deploying the new EPOS solution across the store estate.
•
Adopting a continuous improvement approach in relation
to all operational processes across the business.
•
Reducing store stock loss through the execution of our profit
protection plans.
Progress
•
Improved our fulfilment capacity and delivery capabilities. We
extended our next day delivery cut-off from 8pm to 11pm and
reduced our standard delivery window to a guaranteed three days.
•
Further enhanced our complementary online ranges.
•
Recruited a Head of Digital Marketing to develop and implement
campaigns across new channels, attract more people to our
website and improve our CRM.
•
Started to optimise our new platform. For example, we have
improved the navigation across key product and category pages
to help customers find product matches and introduced browse
attributes to reduce clicks required to purchase.
Priorities for FY23
•
Further enhancing the online customer experience.
•
Launching more targeted online range extensions.
•
Introducing ‘Parcelshop’ as an alternative delivery option.
•
Engaging and retaining more customers through our
digital marketing.
•
Improving the customer experience between stores and online by
making it possible for customers to order from the website when
shopping in-store.
Link to KPIs
Link to KPIs
Link to KPIs
Link to KPIs
Link to Risks
A
C
A
C
1
7
B
D
B
D
2
8
4
10
E E
3
9
5
11
6
12
Progress to date and priorities for FY23
Enhance our online proposition
Drive operational improvements
Develop our brand and increase
customer engagement
Optimise our store estate
Link to Risks
1
9
2
10
4
12
3
11
7 8
Link to Risks
1 2
98 11 12
Link to Risks
1
8 109 11 12
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 17
How we measure performance
We use five KPIs to monitor
the Group’s performance
and our strategic progress.
These KPIs, together with our performance against them, are detailed below. All of the non-GAAP
financial measures detailed can be calculated from the GAAP measures included in the financial
statements, as outlined in the notes to the financial statements. Commentary on these KPIs is
included in the Financial review.
A
Revenue growth
46.5%
FY22
£180.7mFY21
£225mFY20
£264.6m
Definition
The percentage year-on-year change in Group
total sales.
D
Pre-IFRS 16 adjusted EBITDA
£16.6m
FY22
£4.3mFY21
£10.8mFY20
£16.6m
Definition
Represents profit for the period before IFRS 16,
net finance costs, taxation, depreciation and
amortisation, loss on disposals of property,
plant and equipment and Adjusting items.
Adjusting items are gains or losses incurred in
a period which are not expected to be recurring.
C
Adjusted profit/(loss) before tax
£10.1m
Definition
Represents profit for the period before taxation
and Adjusting items. Adjusting items are gains
or losses incurred in a period which are not
expected to be recurring.
FY22
FY21
FY20
(£3.6m)
£10.1m
£2.4m
E
Adjusted diluted earnings per share
13.7p
FY20
FY22
FY21 (4.9p)
3.0p
13.7p
Definition
Calculated by dividing the Adjusted profit for the
period attributable to ordinary shareholders by
the weighted average number of ordinary shares
in issue during the period (including dilutive share
options). Adjusted profit is before the impact of
Adjusting items, which are gains or losses incurred
in a period which are not expected to be recurring.
Definition
Like-for-like (LFL) sales are normally defined by
the Group as the year-on-year growth in gross
sales from stores which have been opened for
a full 63 weeks (but excluding sales from stores
closed for all or part of the relevant period or
prior year comparable period), and from the
Company’s online store, calculated on a calendar
week basis. The FY22 LFL sales increase has
been calculated with reference to the FY20
comparative sales figures, or two-year LFL,
because the extended periods of enforced store
closures during FY21 prevent that period from
forming the basis of meaningful comparisons.
In FY21 the Group reported separate LFL figures
for stores and online because the extended
periods of enforced store closures during that
year prevented the calculation of a meaningful
combined store and online LFL sales figure. The
FY21 figures are not stated on a basis that is
directly comparable with the combined figures
for prior years.
B
Like-for-like sales growth
10.5%
Stores +6.0%
+0.7%
+10.5%
FY22
FY21
FY20
Online +120.9%
TheWorks.co.uk plc Annual Report and Accounts 202218
Financial review
The FY22 accounting period relates to the 52 weeks ended
1 May 2022 (also referred to as the period) and the comparative
FY21 accounting period relates to the 53 weeks ended 2 May 2021.
As is described in the financial statements, the Group tracks a
number of alternative performance measures (APMs), as it believes
that these provide management and other stakeholders with
additional helpful information. APMs used in this report include
EBITDA, Adjusted EBITDA and like-for-like (“LFL”) sales.
The Group made a profit before tax of £10.2m (FY21: loss before
tax of £2.8m). Adjusting items in FY22 were insignificant and the
adjusted profit before tax was £10.1m (FY21: adjusted loss before
tax of £3.6m). The Adjusting items related to net impairment reversals.
The pre-IFRS 16 Adjusted EBITDA was £16.6m (FY21: £4.3m).
Overview
The Group delivered a strong performance in FY22, the first year
under the leadership of the new management team that was
relatively unaffected by COVID-19 disruption. FY22’s performance
was characterised by the following factors:
•
Strong underlying sales throughout the year driven by solid
progress against the Group’s strategic objectives beginning
to leverage the inherent strength of the proposition.
•
Significant disruption to global freight operations in the autumn
of 2021 resulted in much higher freight costs and a less than
ideal flow of stock into the business, despite which, the Group
achieved a record Christmas trading period.
•
A cyber security incident occurred at the end of March 2022.
Operations in the last month of the financial year (and the
beginning of FY23) were intentionally restricted to allow
the deployment of strengthened system security measures
alongside a carefully staged system recovery plan.
•
As the effects of COVID-19 reduced, the level of Government
financial support reduced correspondingly, although the
Group received £5.8m of business rates relief during FY22.
•
The effects of inflation began to have an impact, particularly
in the form of higher freight costs and an increase in the
National Living Wage.
EBITDA bridge between FY21 and FY22 £m
FY21 Adjusted EBITDA (pre-IFRS 16) 4.3
Increased gross margin due to year-on-year
increase in sales 51.9
Lower gross product margin % (including impact of
freight costs) (6.6)
Government furlough relief received in FY21
1
(15.4)
Lower level of COVID-19 business rates relief
received in FY22 (8.3)
COVID-19 business grants received in FY21
1
(1.8)
Resumption of normal operating costs and inflation (7.5)
FY22 Adjusted EBITDA (pre-IFRS 16) 16.6
1 Nil in FY22.
The strong financial performance resulted in another year of
healthy cash generation, even allowing for favourable working
capital timing differences which slightly flattered the comparison;
the closing net cash balance was £16.3m, which compares well with
the £0.8m balance at the end of FY21 (and, for reference, £7.1m of
net debt at the end of FY20).
Despite the healthy cash position and our confidence in the
inherent ability of the Group to generate strong positive cash flow,
with the increasingly bleak tone of external predictions about the
near-term economic outlook, we considered it prudent to buttress
the Group’s financial position by refinancing the Group’s bank
facilities. This was formally completed shortly after the year end
and increases the size of the facility to £30.0m and extends the
expiration date to the end of November 2025.
As a further indication of the Board’s confidence in the prospects of
The Works, dividends will be reinstated, assuming that shareholders
at the AGM approve the Board’s recommendation of a 2.4 pence
per share dividend in respect of FY22.
Due to rounding, numbers presented throughout this document
may not add up precisely to the totals provided and percentages
may not precisely reflect the absolute figures.
Revenue analysis
Total revenue increased by 46.5% to £264.6m (FY21: £180.7m).
The enforced closure of stores during certain periods in FY21
prevents meaningful comparisons of FY22’s sales performance
with that year, so FY20 is used as a comparison period for
trading performance. Total gross sales
1
in FY22 increased by 12.7%
compared to FY20 and two-year LFL sales
2
increased by 10.5%, with
positive growth continuing both online and in stores.
1 ‘Total sales’ referred to in this document includes VAT and is stated prior
to deducting the cost of loyalty points which are adjusted out of the sales
figure in the calculation of statutory revenue. The 52-week comparison
period used for the LFL and total sales growth calculations uses a literal
mapping of calendar weeks between FY22 and the corresponding 52
weeks two/three years prior. Due to the inclusion of a 53rd week in FY21,
the FY20/FY19 statutory accounting periods are one week offset from the
52-week period used in the LFL and total sales comparisons.
2 The LFL sales increase has been calculated with reference to the FY20
comparative sales figures, or two-year LFL, because the extended
periods of enforced store closures during FY21 prevent that period from
forming the basis of meaningful comparisons. For the last five weeks of
the period, the LFL percentages are calculated using the corresponding
weeks in FY19, because the equivalent weeks during FY20 were also
affected by the first period of enforced store closures. Similar comparison
periods are also used for the total sales growth figures quoted.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 19
Enhancing the customer experience
We have continued to optimise our store estate.
During the year we opened five new stores,
including a store in Bluewater, one of the UK’s most
high-profile shopping centres. We also closed
seven stores and relocated six others. To improve
our instore customer experience and drive higher
sales, we have also refitted 16 stores.
The Omicron COVID-19 variant may have reduced sales from
consumers who were being more cautious about going out.
•
The January sale event was smaller than planned because
terminal stock levels were low and we had not bought stock
specifically for the sale period.
Q4 highlights
•
Developments to the product proposition, with front-list books
and branded toys and games being highlights, sold well as
we emerged from the January sale.
•
A cyber security incident at the end of March caused limited
immediate/direct interruption to trading, but the cautious
approach taken to the recovery affected sales in April (and into
the beginning of FY23).
The table below shows the reconciliation of LFL sales used for year-
on-year comparisons, with statutory revenue.
FY22 FY21 Variance Variance
£m £m £m £%
Total LFL sales
for period 261.1 191.0 70.1 36.7
Sales from new/
closed stores 37.3 15.2 22.0 145.2
Total gross sales 298.4 206.2 92.1 44.7
VAT (33.5) (24.3) (9.2) 38.0
Loyalty points
redeemed (0.3) (1.2) 0.9 (77.0)
Revenue (per
statutory accounts) 264.6 180.7 83.8 46.4
The number of stores trading reduced by two during the period,
from 527 to 525. Despite this small change in the net number of
stores at the year end, the sales from new/closed stores in the
previous table shows a significant increase compared with the prior
year, due to the relative timing of store openings/closures as well
as the effect of the periods of enforced store closures in FY21. The
one-year LFL percentage growth is relatively low by comparison,
because a significant one-year LFL decline in online sales partially
offset a high store LFL (also due to the periods of closure in FY21).
Most of the capital cost of opening the new stores continued
to be funded via capital contributions from landlords, reducing
the impact on the Group’s cash flow. The new stores are trading
successfully with sales levels above their financial appraisal targets.
Store numbers FY22 FY21
Opening store numbers 527 534
Stores at the beginning of the period 5 4
Closed in the period (7) (11)
Relocated (excluded from opened/
closed above, NIL net effect on store
numbers) 6 2
Stores at the end of the period 525 527
The cost of loyalty points redeemed during the year increased
as expected, in line with the sales increase, but the reported cost
reduced due to the write back of points previously issued and
accounted for which have subsequently expired, and can no longer
be redeemed.
We have noted that books sold well during FY22, increasing their
participation of total sales. As they are zero rated for VAT, this
benefited the effective VAT rate which was 11.2% compared with
11.8% in FY21.
Strategy in action
Optimise our store estate
Financial review continued
Photo: Our Bluewater store which opened in
November 2021.
Revenue analysis continued
Two-year LFL sales growth Stores Online Total
Q1 5.7% 96.8% 13.4%
Q2 8.6% 71.0% 15.5%
H1 7.3% 80.6% 14.5%
Q3 (0.3%) 70.0% 7.9%
Q4 3.2% 42.5% 6.8%
H2 0.9% 62.1% 7.5%
Full year 3.7% 69.7% 10.5%
Q1 highlights
•
Pent-up demand following the recent re-opening of stores (in
April 2021) was supported by a sale which was larger than usual
as it included stock we were unable to sell in January/February
2021 when we would normally have held a post-Christmas sale.
•
During summer 2021, ‘fidget frenzy’ stock became very popular,
at the end of Q1, which then combined with a strong back to
school performance in August to create a positive start to Q2.
Q2 highlights
•
Sales during September and October were stronger than
expected, likely to have been helped by Christmas demand
beginning early. We hypothesise that customers sought to
minimise risks of not being able to shop before Christmas and/or
of stock being scarce due to widely reported issues with supplies
due to the global freight/supply chain challenges.
Q3 highlights
•
Record Christmas despite the overall stock mix and its
distribution to stores not being as well executed as we had
planned due to the supply chain disruption, for example,
Christmas accessories did not arrive until early in December.
TheWorks.co.uk plc Annual Report and Accounts 202220
Gross profit
FY22
FY21
(Restated
1
)
% of % of Variance Variance
£m revenue £m revenue £m £%
Revenue 264.6 180.7 84.0 46.5
Less: cost of
goods sold 107.7 69.0 38.7 56.1
Product gross
margin 157.0 59.3 111.7 61.8 45.3 40.5
Other costs
included in
statutory cost
of sales
Store payroll 43.6 16.5 37.7 20.8 5.9 15.7
Store property
and establishment
costs 43.7 16.5 36.7 20.3 7.0 19.1
Store PoS &
transaction fees 2.1 0.8 1.4 0.8 0.7 47.7
Store
depreciation 5.0 1.9 5.2 2.9 (0.2) (4.0)
Online variable
costs 18.7 7.1 24.5 13.6 (5.8) (23.8)
IFRS 16 impact (4.7) (1.8) (4.2) (2.3) (0.5) 11.1
Adjusting items — — (1.0) (0.5) 0.9 (97.0)
Total non-product
related cost of
sales 108.4 41.0 100.4 55.6 8.0 8.0
Gross profit per
financial
statements 48.5 18.3 11.3 6.3 37.2 328.8
1 See Note 7 of the financial statements.
The product gross margin decreased by 250bps to 59.3%
(FY21: 61.8%).
•
The gross margin was affected by much higher freight costs
than normal, particularly in H2 FY22 (these have remained high
into FY23 but we expect them to abate in FY24, offsetting the
adverse effect of a weaker pound).
•
The FY21 comparative included unusually low discounting, particularly
online, when the stores were closed due to restrictions.
•
The product mix included a greater proportion of front-list books
and branded games and toys, which sell at a lower percentage
margin, although contribute positively to the cash margin.
Store payroll costs increased due to the National Living Wage
increase, which was partially mitigated by operational efficiencies
and reduced tasking in the stores. Also, in FY21, when colleagues
were furloughed, only 80 % of the normal wage rate was paid.
Store property and establishment costs increased due to a year-
on-year reduction in the value of COVID-19 business rates relief
received (£5.8m was received in FY22) and higher energy costs,
which were partially offset by further rent savings (energy costs
have also increased significantly in FY23, although this is factored
into our forecast).
The increase in store point of sale (PoS) and transaction fees,
which are volume related costs, was broadly in line with the
increase in sales.
Although on a two year LFL basis, online sales grew by 69.7%, on
a one year LFL basis, compared to the exceptionally high sales
levels in FY21 when stores were closed, online sales declined,
with a corresponding decrease in volume related costs including
marketing and fulfilment costs.
Other operating income/expense
The other operating expense was £0.1m (FY21: other operating
income of £17.1m). In FY21 the income related to the Government
Coronavirus Job Retention Scheme and the COVID-19 Retail,
Hospitality and Leisure Grant Fund (the COVID-19 rates relief
received is netted off rates costs within statutory cost of sales,
as described in the previous section).
FY22 FY21
Other operating % of % of Variance Variance
income £m revenue £m revenue £m %
Coronavirus Job
Retention Scheme
grants (0.1) — 15.3 8.5 (15.4) (100.7)
COVID-19 retail
business grant — — 1.8 1.0 (1.8) (100.0)
(0.1) — 17.1 9.4 (17.2) (100.7)
Distribution costs
FY22
FY21
(Restated
1
)
% of % of Variance Variance
£m revenue £m revenue £m %
Adjusted
distribution costs 9.0 3.4 6.4 3.5 2.7 42.5
Depreciation 0.1 — 0.1 0.1 — (16.0)
IFRS 16 impact — — — — — (91.0)
Distribution costs
per statutory
accounts 9.1 3.4 6.4 3.6 2.7 41.8
1 See Note 7 of the financial statements.
Retail distribution costs were higher during the period as the
stores were trading throughout, in contrast to the prior year, and
therefore volume driven labour and pallet delivery costs increased.
In addition, the increase in the National Living Wage rate increased
staff costs although some of the inflationary increase was
mitigated by operating/efficiency improvements.
Administration costs
FY22
FY21
(Restated
1
)
% of % of Variance Variance
£m revenue £m revenue £m %
Pre-IFRS 16,
Adjusted
administration
costs 23.2 8.8 17.8 9.9 5.4 30.1
Depreciation 1.2 0.5 1.7 0.9 (0.5) (28.2)
IFRS 16 impact (0.4) (0.1) (0.4) (0.2) 0.0 (6.9)
Adjusting items — — 0.2 0.1 (0.2) (100.0)
Administration
costs per
statutory
accounts 24.0 9.1 19.3 10.7 4.7 24.5
1 See Note 7 of the financial statements.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 21
Administration costs continued
The increase in administrative costs reflects investments made to
strengthen the senior leadership team and key functions including
supply chain and IT, and an accrual for FY22 bonus (there was no
bonus cost in respect of FY21). There were also higher software
maintenance/licence costs and the cost of resuming normal activities
such as travel which were suppressed for periods during FY21.
IFRS 16 Leases
The Group continues to include information to enable stakeholders
to see the effect of IFRS 16. The net impact of IFRS 16 was to increase
the profit before tax in FY22 by £0.9m (FY21: £0.7m increase).
FY22
£m
FY21
(Restated
1
)
£m
Profit/(loss) before tax before IFRS 16 9.3 (3.5)
Profit/(loss) before tax post IFRS 16 10.2 (2.8)
Net impact on profit/(loss) 0.9 0.7
1 See Note 5 of the financial statements.
Net financing expense
Net financing costs in the period were £5.2m (FY21: £5.5m), mostly
relating to notional IFRS 16 lease interest.
Actual interest payable was £0.7m, in relation to the Group’s bank
facilities (FY21: £0.6m), and comprised facility availability charges
and the amortisation of the initial costs of establishing the bank
facility in August 2020 (the cost of the new facility will be amortised
from FY23).
FY22
£m
FY21
£m
Bank interest payable (including
non-utilisation costs) 0.4 0.3
Other interest payable (amortisation
of facility set-up costs) 0.3 0.3
IFRS 16 notional interest on lease
liabilities 4.5 4.9
Total finance expense 5.2 5.5
Tax
FY22
£m
FY21
£m
Current tax expense 2.1 0.0
Deferred tax credit (0.6) (0.5)
Total tax expense/(credit) 1.4 (0.5)
The UK corporation tax rate for FY22 and FY21 was 19.0%. The UK
corporation rate is due to increase from 19% to 25% on 1 April 2023,
although we understand that this decision is now under review.
Deferred tax assets and liabilities are recognised based on the
corporation tax rate applicable when they are anticipated to unwind.
Therefore, the deferred tax assets and liabilities have been largely
recognised at a rate of 25.0% (FY21: 19.0%), which creates a deferred
tax credit that reduced the Group’s effective tax rate for FY22.
The total tax expense was £1.4m (FY21: credit of £0.5m). The
effective tax rate was 14.1% (FY21: 17.9% on the loss before tax).
Earnings per share
The basic EPS for the year was 14.0 pence (FY21: loss per share of
3.7 pence) and the diluted EPS was 13.7 pence (FY21: diluted loss per
share of 3.7 pence).
Capital expenditure
FY22 FY21 Variance
£m £m £m
New stores and
relocations 0.5 0.6 (0.1)
Store refits and
maintenance 0.9 0.7 0.2
IT hardware and software 1.2 0.6 0.6
Online development
expenditure 0.2 0.5 (0.3)
Other 0.2 0.1 0.1
Total capital expenditure 3.0 2.4 0.6
Capital expenditure in the period was £3.0m (FY21: £2.4m)
and comprised:
•
the cost of opening five new stores and relocating six others
to new sites. Most of the new store capex was funded by
landlord contributions;
•
store maintenance including 16 refits;
•
increased IT development expenditure, reflecting the
implementation of the Group’s strategy to improve its systems.
FY23 capex is expected to be approximately £7.5m.
Inventory
Stock levels were £29.4m at the end of FY22 (FY20: 29.1m),
an increase of 1.0%.
Provisions as % of
gross stock
FY22 FY21 Variance Variance FY22 FY21
£m £m £m % % %
Gross stock 29.8 31.0 (1.2) (3.9%)
Shrinkage
provision (1.9) (2.6) 0.7 (26.9%) 6.4% 8.4%
Obsolescence
provision (1.3) (1.8) 0.5 (27.8%) 4.4% 5.8%
Total provisions (3.2) (4.4) 1.2 (27.3%) 10.7% 14.2%
Net stock on hand 26.6 26.7 0.1 0.4%
Stock in transit 2.8 2.5 0.3 13.9%
Stock per balance
sheet 29.4 29.1 0.3 1.0%
Stock levels at the end of FY22 were as planned and were not
affected as they had been at the previous two year ends by issues
related to COVID-19. The level of stock provisions has reduced
significantly since the end of FY21:
•
The provision for unrecognised stock loss (shrinkage) is lower
as, unlike in FY21, it was possible to complete store stock
counts during the year which enabled stock adjustments to
be made during the year to recognise losses, requiring a lower
unrecognised loss provision at the end of the year.
•
The obsolescence provision is lower because a significant
quantity of terminal stock was sold or written off during FY22
which resulted in a lower level stock requiring a provision at the
end of the year.
Financial review continued
TheWorks.co.uk plc Annual Report and Accounts 202222
Cash flow
The table shows a summarised non-IFRS 16 presentation cash flow;
the financial statements include a statutory consolidated cash flow
statement. The net cash inflow for the year was £15.5m (FY21: £7.9m).
FY22 FY21 Variance
£m £m £m
Cash flow pre-working
capital 19.3 14.8 4.5
Net movement in working
capital 7. 4 (1.2) 8.6
Capex (3.0) (2.4) (0.6)
Tax paid (0.2) — (0.2)
Interest and financing
costs (0.3) (0.9) 0.6
Dividends — — —
Cash flow before loan
movements 23.2 10.3 12.9
Drawdown/(repayment)
of CLBILS loan (7.5) 7.5 (15.0)
Drawdown/(repayment)
of RCF — (10.0) 10.0
Exchange rate
movements (0.1) 0.2 (0.3)
Net increase in cash and
cash equivalents 15.5 7.9 7.7
Opening net cash
balance excluding IAS 17
leases 0.8 (7.1)
Closing net cash balance
excluding IAS 17 leases 16.3 0.8
•
The cash flow pre working capital shown in the table deducts
IFRS 16 notional lease and interest payments from the statutory
operating cash flow before changes in working capital, and adds
back the £7.5m CLBILS loan repayment.
•
The tax paid in FY22 was lower than we would expect to
pay in relation to normal years, due to previous low levels of
taxable profits.
•
During the year the Group repaid its £7.5m CLBILS term loan
The year end cash balance was higher than expected as it
included favourable working capital timing differences, most of
which have unwound in FY23. The cash position provides the Group
with a high degree of available liquidity and comfortably allows
for the payment of the final dividend the Board will recommend
at the AGM.
Bank facilities and financial position
The financial position of the Group continued to improve during
the period, at the end of which, there were no borrowings.
At the period end, the Group held net cash (excluding lease
liabilities) of £16.3m (FY21: £0.8m) resulting in headroom of
approximately £35.0m within its previous bank facility limit.
The Group’s bank facilities were renewed shortly after the period
end and now comprise a larger revolving credit facility (‘RCF’) of
£30.0m which expires on 30 November 2025. The facility includes
standard financial covenants in relation to leverage and fixed
charge cover.
Dividend
In light of the strong performance in FY22, the robust balance
sheet, and its confidence in the future prospects of the business
despite the short-term concerns as regards the external economic
environment, the Board will be recommending a 2.4 pence per
share dividend in respect of FY22, which will be subject to shareholder
approval at our AGM on 27 October 2022. If approved by shareholders,
the dividend will be paid on 24 November 2022 to shareholders on
the register on the record date of 4 November 2022.
We hope to maintain the cadence of twice yearly dividend
payments thereafter; whilst the consumer market remains
especially volatile, we will review future payment levels based on
conditions at the time, but intend to resume a progressive dividend
policy in due course once conditions stabilise.
Steve Alldridge
Chief Financial Officer
23 September 2022
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 23
Our stakeholders
To succeed it is essential
that we engage with
our stakeholders.
Our stakeholders and how
we engage with them are
detailed on this and the
adjacent page. To succeed
it is essential that we
understand what matters
to them and consider this
information as part of our
decision-making process.
Examples of how stakeholder
issues and the matters set
out in Section 172(1) (a) to
(f) of the Companies Act
were considered in the
Board’s decision making
during the year are set out
over the page.
Our people
Enable us to fulfil our purpose
and deliver our strategy.
Our customers
Buy our products.
Our suppliers
Support our sourcing and
distribution activities.
Communities
Impacted by our activities.
Shareholders
Seek returns on their investment.
What matters to them
•
Safe, healthy and good working environment.
•
Fair rewards.
•
Enjoyable work.
•
Being part of a company that has a clear
purpose and values that resonate.
•
Engagement and support.
•
Development opportunities.
•
Wide variety of great products.
•
Good value and quality.
•
Customer experience.
•
Reliable and convenient service.
•
Long-term relationships.
•
Fair treatment.
•
Payment in accordance with
contractual terms.
•
Responsible business practices.
•
Employment opportunities.
•
Positive social impact.
•
Sustainable operations.
•
Competent execution of strategy.
•
Good governance.
•
Sustainable and growing returns.
•
Regular clear and understandable
communications and transparency.
•
ESG performance.
Group-wide engagement
•
Interaction encouraged in many ways
including regular briefings, videos and
The Works Facebook Family group.
•
Annual engagement survey to give us an
independent view of what we are doing well
and where we must improve.
•
Local-level engagement including team
video calls and briefings.
•
Active social media engagement.
•
‘Together’ loyalty programme.
•
Customer surveys.
•
Day-to-day interactions between
customers and store colleagues.
•
Regular commercial dialogue.
•
When it is safe to do so, in-person
meetings with suppliers, factory visits
and attendance at trade fairs.
•
Our quality assurance team works
closely with suppliers to ensure product
safety and quality control.
•
‘Giving Something Back’ programme
(see page 37).
•
Local community initiatives (see page 37).
•
Easily accessible investor information,
including announcements, results
and presentations, is available on the
Company’s website.
Board-level engagement
•
Regular Director store visits and meetings with
senior management and store colleagues.
•
Presentation to the Board by the People
Director covering people and talent strategy
and its linkage to the Group’s purpose, culture
and strategy.
•
People Director regularly provides updates
at Board, and Nomination and Remuneration
Committee meetings.
•
Regular Director store visits including
direct engagement with customers.
•
Commercial Director, Retail Director,
Digital Director, and Head of Brand
regularly provide customer feedback
to the Board.
•
Commercial Director provides regular
updates to the Board on supplier
matters and relationships.
•
The Board and Audit Committee review
the Group’s payment practices.
•
Board oversees development of ESG
strategy and monitors progress.
•
ESG steering group regularly updates
the Board on relevant ESG matters.
•
Board in-depth review of the Group’s
community engagement activities.
•
Annual General Meeting.
•
The Chair and Committee Chairs are
available to shareholders to discuss
specific matters as they arise.
•
CEO and CFO participate in meetings
and calls with investors and analysts
and provide regular Board updates
following such engagement.
Outcomes
•
Awarded two-star rating in the 2021 Best
Companies survey and ranked as 13th Best
Big Company to work for (see page 34).
•
In recognition of hard work during the
pandemic and to say thank you, bonuses
were paid to all colleagues.
•
Keeping our understanding of what
customers want from us up to date.
•
Create products that meet customers
wants and needs.
•
Continued growth in LFL sales.
•
Increased loyalty membership.
•
Board review of payment practices
ensures that suppliers are treated fairly.
•
Promote fair and ethical business
practices through supply chain
management (see page 38).
•
Many long-term supplier relationships.
•
Increasing collaboration with key
publishers.
•
Strengthening ESG strategy given growing
importance to stakeholders.
•
Over £125k raised in partnership with CRUK
during FY22 (see page 37).
•
Over £75k raised in partnership with Mind/
SAMH/Inspire during FY22 (see page 37).
•
Reinstatement of dividend in FY22,
subject to shareholder approval, and
progressive dividend policy.
•
Strengthening ESG strategy given
growing importance to stakeholders.
Read more on page 34.
Read more on pages 14 and 15.
Read more on page 38.
Read more on pages 34 to 37.
Read more on page 3.
TheWorks.co.uk plc Annual Report and Accounts 202224
Our people
Enable us to fulfil our purpose
and deliver our strategy.
Our customers
Buy our products.
Our suppliers
Support our sourcing and
distribution activities.
Communities
Impacted by our activities.
Shareholders
Seek returns on their investment.
What matters to them
•
Safe, healthy and good working environment.
•
Fair rewards.
•
Enjoyable work.
•
Being part of a company that has a clear
purpose and values that resonate.
•
Engagement and support.
•
Development opportunities.
•
Wide variety of great products.
•
Good value and quality.
•
Customer experience.
•
Reliable and convenient service.
•
Long-term relationships.
•
Fair treatment.
•
Payment in accordance with
contractual terms.
•
Responsible business practices.
•
Employment opportunities.
•
Positive social impact.
•
Sustainable operations.
•
Competent execution of strategy.
•
Good governance.
•
Sustainable and growing returns.
•
Regular clear and understandable
communications and transparency.
•
ESG performance.
Group-wide engagement
•
Interaction encouraged in many ways
including regular briefings, videos and
The Works Facebook Family group.
•
Annual engagement survey to give us an
independent view of what we are doing well
and where we must improve.
•
Local-level engagement including team
video calls and briefings.
•
Active social media engagement.
•
‘Together’ loyalty programme.
•
Customer surveys.
•
Day-to-day interactions between
customers and store colleagues.
•
Regular commercial dialogue.
•
When it is safe to do so, in-person
meetings with suppliers, factory visits
and attendance at trade fairs.
•
Our quality assurance team works
closely with suppliers to ensure product
safety and quality control.
•
‘Giving Something Back’ programme
(see page 37).
•
Local community initiatives (see page 37).
•
Easily accessible investor information,
including announcements, results
and presentations, is available on the
Company’s website.
Board-level engagement
•
Regular Director store visits and meetings with
senior management and store colleagues.
•
Presentation to the Board by the People
Director covering people and talent strategy
and its linkage to the Group’s purpose, culture
and strategy.
•
People Director regularly provides updates
at Board, and Nomination and Remuneration
Committee meetings.
•
Regular Director store visits including
direct engagement with customers.
•
Commercial Director, Retail Director,
Digital Director, and Head of Brand
regularly provide customer feedback
to the Board.
•
Commercial Director provides regular
updates to the Board on supplier
matters and relationships.
•
The Board and Audit Committee review
the Group’s payment practices.
•
Board oversees development of ESG
strategy and monitors progress.
•
ESG steering group regularly updates
the Board on relevant ESG matters.
•
Board in-depth review of the Group’s
community engagement activities.
•
Annual General Meeting.
•
The Chair and Committee Chairs are
available to shareholders to discuss
specific matters as they arise.
•
CEO and CFO participate in meetings
and calls with investors and analysts
and provide regular Board updates
following such engagement.
Outcomes
•
Awarded two-star rating in the 2021 Best
Companies survey and ranked as 13th Best
Big Company to work for (see page 34).
•
In recognition of hard work during the
pandemic and to say thank you, bonuses
were paid to all colleagues.
•
Keeping our understanding of what
customers want from us up to date.
•
Create products that meet customers
wants and needs.
•
Continued growth in LFL sales.
•
Increased loyalty membership.
•
Board review of payment practices
ensures that suppliers are treated fairly.
•
Promote fair and ethical business
practices through supply chain
management (see page 38).
•
Many long-term supplier relationships.
•
Increasing collaboration with key
publishers.
•
Strengthening ESG strategy given growing
importance to stakeholders.
•
Over £125k raised in partnership with CRUK
during FY22 (see page 37).
•
Over £75k raised in partnership with Mind/
SAMH/Inspire during FY22 (see page 37).
•
Reinstatement of dividend in FY22,
subject to shareholder approval, and
progressive dividend policy.
•
Strengthening ESG strategy given
growing importance to stakeholders.
Read more on page 34.
Read more on pages 14 and 15.
Read more on page 38.
Read more on pages 34 to 37.
Read more on page 3.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 25
Section 172 statement
This disclosure forms the Directors’ statement under Section 414CZA
of the Companies Act 2006.
Both individually and collectively, the Directors believe that they
have acted in the way they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of
its members as a whole (having regard to the stakeholders and
matters set out in Section 172(1)(a) to (f) of the Companies Act 2006)
in all decisions taken by the Board during the 52-week period
ended 1 May 2022 (FY22).
Examples of principal decisions made by the Board, and the
Board’s regard during its decision-making process for the Section
172 matters described on this page, are detailed below.
Under Section 172(1) of the Companies Act 2006, a director of a
company must act in the way he or she considers, in good faith,
would be most likely to promote the success of the company for
the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to:
•
the likely consequence of any decision in the long term;
•
the interests of the company’s employees;
•
the need to foster the company’s business relationships with
suppliers, customers and others;
•
the impact of the company’s operations on the community
and the environment;
•
the desirability of the company maintaining a reputation for
high standards of business conduct; and
•
the need to act fairly as between members of the company.
How the Directors have had regard
to the matters set out in Section
172(1)(a) to (f) of the Companies Act.
Decision Stakeholder considerations
Branding
and purpose
In October 2021, the Board agreed to invest in a brand evolution programme including the development of
a more articulate expression of the Group’s purpose and mission and development of new brand values. The
brand programme was informed by extensive research facilitated by external consultants and takes account
of feedback provided by customers, suppliers and colleagues.
Investment in new
iForce e-commerce
logistics contract
In January 2022, the Board agreed to renew the Group’s e-commerce logistics contract with iForce following
a competitive tender exercise. Key elements of the new contract included additional investment by the supplier
to fund the introduction of automated picking robots and an automated packing machine. As part of the
new contract’s approval process, the Board considered the operational efficiencies the new contract would
deliver and the resulting long-term financial benefits. The Board also considered the positive impact of the new
arrangements on iForce’s manpower requirements, particularly during peak periods, and the environmental
benefits arising from reduced packaging.
Reinstatement
of dividend
One of the measures taken to preserve cash during the pandemic was to suspend dividend payments in respect
of FY20 and FY21. In May 2022 the Board considered the Group’s performance and outlook and concluded that
it was appropriate to recommend a final year dividend of 2.4 pence per share in respect of FY22. As part of
the decision-making process the Directors considered stakeholders’ interests over the medium and long-term,
including the interests of the Group’s shareholders. The Board also considered the Group’s employees. In making
this decision, given the uncertain external environment, the Board satisfied itself about the Group’s ability to
continue to make investments to implement its strategy and generate value for all stakeholders, including
customers and suppliers, over the medium and long term.
Cyber-security
incident response
The Board met several times at the end of March and beginning of April 2022 to consider the response to a
cyber-security incident involving unauthorised access to the Group’s computer systems. The Board received
reports from management on the steps taken to stop the attack and assess its impact on trading and the
business’ operations. The Board considered the potential compromise to customer and colleague data arising
from the attack and the ability of customers to continue to shop safely. It also considered the welfare of the IT
and management teams during the intense period of activity following the incident to implement immediate
measures to strengthen security. The Board endorsed a decision to install IT system upgrades through an
accelerated programme designed to provide more secure protection of colleague and customer data in future.
Electronic Point
of Sale (EPOS)
replacement
In September 2022, the Board approved a project (including capital expenditure) to replace on a phased basis
the existing EPOS solution. In making this decision, it was recognised that the existing system and hardware
was not capable of supporting required capabilities in retail and multichannel offerings. Key considerations in
approving the new system included: (a) the fact that back office functionality would be moved to the till, reducing
the need for store staff to leave the shop floor; (b) improved customer experience (e.g. the ability to place online
orders in store); and (c) the long-term benefits of a more modern system which could be further developed to
meet the changing needs of a multi-channel retail business.
TheWorks.co.uk plc Annual Report and Accounts 202226
Becoming the go-to place
for reading, learning,
creativity and play.
Our brand evolution programme supports our
ambition to become one of the most loved
retailers in the UK - the go-to place for reading,
learning, creativity and play. By evolving our
brand and enhancing of our offering we aim to
reach more customers, increase their shopping
frequency and, more generally, improve external
perceptions of our brand.
Read more about our strategy
on pages 16 and 17.
Strategy in action
Develop our brand and increase
customer engagement
Evolving our brand.
Our brand evolution programme reflects stakeholders’
feedback and supports our strategic objective to build
deeper customer relationships and drive brand loyalty.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 27
ESG review
Creating a sustainable economy and transitioning to
net zero is the challenge of our times. The responsibility
rests collectively with governments, businesses, and
the general public. As a retail business we recognise
our role in this effort, as well as our responsibility to
be socially conscious and maintain high standards
of governance.
Our sustainability pillars
Environment
•
Products and packaging
•
Waste recycling
•
Energy consumption
Social
•
Our people
•
Health, safety and wellbeing
•
Diversity and inclusion
•
Giving something back
Governance
•
Operating responsibly
•
Supply chain management
Read more on pages 29 to 33.
Read more
on pages 34 to 37.
Read more on page 38.
Our approach
In June 2021 we launched our ESG steering group. Its role is to
ensure we operate responsibly in line with our purpose and values,
and to monitor our ESG agenda. It is chaired by our CEO and meets
on a quarterly basis.
While we are continuing to evolve our overall sustainability
strategy, the ESG steering group has identified a number of core
sustainability pillars (which are outlined below) and set up sub-
group committees to progress specific projects in these areas.
To help develop our sustainability strategy and ensure we
achieve full compliance with the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD), we have
appointed a specialist ESG consultancy to work with us (see
page 31). A number of activities are already underway, including
the collection of data and insights to help us fully understand our
impact on the environment. This information will help us develop
a sustainability strategy that addresses stakeholder issues and
supports the growth of our business. It will also enable us to
establish targets against which we will monitor progress.
TheWorks.co.uk plc Annual Report and Accounts 202228
Reducing our
environmental impact.
Our objective is to reduce our impact on the environment, including
energy consumption, material sourcing and product and packaging
disposal. We are committed to year-on-year improvements in our
operational energy efficiency.
Environment
•
We operate recycling facilities at all store locations capable
of recycling mixed papers, cardboard (which constitutes a very
large proportion of store waste) and mixed plastics including
HDPE, PET and PP. Our Support and Distribution Centres in
Coleshill, Birmingham, also operate a recycling programme
to ensure all mixed film plastics and cardboard materials are
baled onsite and removed for recycling.
•
We are working on landing recycling schemes for helium balloons
to minimise waste.
Products and packaging
We are committed to reducing our usage of polybags and other
single-use packaging and we are implementing a range of
initiatives to reduce and/or replace these materials including:
•
We have stopped buying single-use carrier bags. We now offer
reusable, affordable bags made from 95% recycled materials
and we will shortly be introducing cotton and jute options. This
has reduced the amount of plastic we purchase annually by
28 tonnes and removed 2.7m bags from the waste stream.
•
We have moved our new Christmas Crafting range to 30%
recycled polybags, and use FSC accredited sources for our
cardboard packaging where possible. As we roll out our new
branding, we will be extending this to our wider Craft range,
thereby removing single-use plastic from these products.
•
We are also reducing the size of our Christmas kits to make the
packaging more appropriate to the contents and optimising
space to increase efficiency during transportation.
•
We are using cardboard packaging in more creative ways to
reduce unnecessary packaging while still securing items in
transit and presenting products attractively to customers.
•
Our publishing partners are all committed to using responsibly
managed timber for all paper.
Waste recycling
We are committed to reducing the level of waste our business
generates and to maximising the proportion that is recycled. Our
colleagues share this commitment. Their feedback from our recent
engagement survey (see page 34) highlighted demand for more
in-store recycling facilities.
Key elements of our waste reduction and recycling
programme include:
•
We continue to educate our teams to maximise the level
of waste that can be recycled and minimise the number of
collections required to reduce the associated carbon footprint
of waste collection and movement and to minimise store waste
sent to landfill.
‘ReWorking’ our product offering
As far as possible we ‘reWork’ our product packaging
to make it more environmentally friendly. For example we
removed all plastic acetate lids across our Christmas card
range. Based on the 800,000 Christmas cards we sold
during FY22, this equates to eight tonnes of plastic. We
have also made our 500 and 1,000 piece jigsaw boxes
smaller and removed their shrink wrap.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 29
ESG review continued
Environment continued
Consumption (kWh) and greenhouse gas emissions
(tCO
2
e) totals
The following figures show the consumption and associated
emissions for this reporting year for our operations, with figures
from the previous reporting period included for comparison.
Scope 1 consumption and emissions relate to direct combustion of
natural gas, and fuels utilised for transportation operations, such
as company vehicle fleets.
Scope 2 consumption and emissions relate to indirect emissions
relating to the consumption of purchased electricity in day-to-day
business operations.
Scope 3 consumption and emissions relate to emissions resulting
from sources not directly owned by us. These relate to grey fleet
(business travel undertaken in employee-owned vehicles) only.
Totals
The total consumption (kWh) figures for reportable energy supplies
are as follows. FY21 was an atypical year with stores closed for
many weeks, as such emissions have increased in FY22.
Utility and scope
FY22
consumption
(kWh)
FY21 Restated
consumption
(kWh)
1
Grid-supplied electricity (Scope 2) 13,513,022 8,883,385
Gaseous and other fuels (Scope 1) 185,387 194,888
Transportation (Scope 1) 798,916 —
Transportation (Scope 3) 81,962
Total 14,579,287 9,078,273
1 Utility specific kWh consumption values were not available for prior year
reporting; therefore, only the total kWh consumption disclosed is included
within this table.
The total emission (tCO
2
e) figures for reportable energy supplies are
as follows.
Utility and Scope
FY22
consumption
(tCO
2
e)
Restated
FY21
consumption
(tCO
2
e)
1
FY21
consumption
(tCO
2
e)
1
Grid-supplied
electricity (Scope 2) 2,869.22 2,071.07 4,783.07
Natural gas (Scope 1) 33.96 35.83 44.21
Transportation
(Scope 1) 185.25 270.43 270.43
Transportation
(Scope 3) 19.01 — —
Refrigerants
2
(Scope 1) — 14.56 14.56
Total 3,107.44 2,391.89 5,112.27
1 As a result of a recalculation of FY21 energy and carbon figures, kWh and
emissions for grid-supplied electricity and natural gas have been restated.
2 No fugitive emissions were recorded for FY22.
Intensity metric
An intensity metric of tCO
2
e per £m has been applied for our annual
total emissions. The methodology of the intensity metric calculations
is detailed below, and results of this analysis is as follows:
Intensity metric
2021/22
intensity metric
Restated
2020/21
intensity metric
1
tCO
2
e/£m revenue 11.75 13.24
1 As a result of a recalculation of FY21 energy and carbon figures, kWh
and emissions for grid-supplied electricity and natural gas have been
restated. The metric reported in FY21 was 28.2.
Energy efficiency improvements
We are committed to year-on-year improvements in our
operational energy efficiency. As such, a register of energy
efficiency measures available to us has been compiled, with
a view to implementing these measures in the next five years.
Measures ongoing and undertaken through FY22
We have undertaken a range of energy-saving initiatives including:
•
installing LED lighting and energy efficient equipment in all new
stores and retrofitting a number of stores with these technologies
to help further reduce our in-store consumption;
•
regular electrical audits to ensure the equipment we use or
inherit is energy efficient; and
•
educating our store colleagues about reducing energy consumption
and wastage and the impact both have on the environment.
Measures prioritised for implementation in FY23
We are planning further efficiency improvements for our
estate including:
•
continuing to refit our existing estate with LED lighting and
energy efficient technology;
•
reducing our environmental impact primarily through waste
recycling and packaging and seeking to minimise energy use;
Reporting methodology
Scope 1, 2 and 3 consumption and CO
2
e emissions data has
been calculated in line with the 2019 UK Government environmental
reporting guidance. Emissions Factor Database 2021 version 1 has
been used, utilising the published kWh gross calorific value (CV) and
kgCO
2
e emissions factors relevant for reporting period 3 May 2021 to
1 May 2022.
All consumption data was complete for the reporting year, and
as such no estimations were required.
Electricity and natural gas data has been restated for FY21. Transport
and fugitive emissions data has not been restated due to a review of
emission reporting methodology for continuity with FY22 reporting.
Intensity metrics have been calculated using total tCO
2
e figures
and total turnover used for the performance indicator for FY22
was £264.6m (FY21: £180.7m).
3,107.44
Total emissions
11.75
Emissions intensity
TheWorks.co.uk plc Annual Report and Accounts 202230
Overview
Our business activities cover the sourcing and sale of a wide
range of books, toys, arts and crafts and stationery products.
The environmental impact of these activities is explained on page
30 and relate in the main to product packaging, waste recycling
and energy consumption. While risks associated with these issues
do not pose a significant threat to our business, we recognise
the obligation we have to reduce our impact on the environment.
We are also aware of growing consumer demand for sustainable
products and the commercial risks and opportunities this is
creating. In addition, currently, a substantial part of the Group’s
profit is generated during the short Christmas peak sales period.
Extreme weather events during this time could disrupt our flow of
stock, deliveries to store and fulfilment of online orders. In response
to these risks and opportunities we are evolving our sustainability
strategy and embedding appropriate risk management processes
across our operations.
TCFD compliance statement
Our TCFD compliance statement is set out below. In line with
the requirements of LR 9.8.6(8)R, we are reporting on a ‘comply or
explain’ basis against the 11 recommended TCFD disclosures. The
table below sets out our compliance status in relation to each of the
recommendations and, where relevant, the actions we are taking to
achieve compliance.
As at 1 May 2022, our disclosures were not consistent with nine of
the 11 recommended disclosures. In the main this is because our ESG
steering group, which was established last year, has been focused
on developing an appropriate sustainability strategy. To help in this
process, we have appointed a specialist ESG consultancy to advise
and work with us. A detailed programme of work has been agreed,
including work streams to:
•
improve our reporting;
•
integrate the assessment and management of climate-related
matters into everyday business processes; and
•
set science-based emission reduction targets to enable us
to monitor and measure progress.
A key focus for the ESG steering group in the coming year will
be to effectively monitor and review the implementation of this
programme to ensure that our reporting will be compliant with all 11
TCFD recommendations.
TCFD statement
We support the recommendations of the TCFD and are committed to
providing information about climate-related risks and opportunities that
are relevant to our business and to evolving our strategy and governance
framework to take account of such risks and opportunities.
Theme
TCFD disclosure
recommendation and
compliance status as at
1 May 2022 Activities to date and actions to achieve compliance
Governance Describe the Board’s
oversight of climate
related risks and
opportunities.
Compliant
The Board has overall accountability for ESG, including climate-related matters, and
has delegated a number of activities to our ESG steering group (see page 28). The
Board reviews the Group’s most significant risks at least twice a year. In January 2022,
the Audit Committee and the Board considered the updated consolidated risk register
(see below), which recognised climate change risk for the first time. This updated
register takes account of our new strategy, internal discussions and the current and
emerging external environment. The Audit Committee and the Board deliberated and
discussed the updated register, including allocating ratings for each risk on the primary
register, and reviewed and updated the Group’s principal risks and mitigation actions
(see page 39). As part of these discussions and review the Board considered the threat
of climate change and initiated discussions on addressing its impact.
Planned actions
The Board will receive quarterly updates from the ESG steering group, including
progress reports in relation to the programme of work to achieve compliance with
the TCFD recommendations.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 31
Theme
TCFD disclosure
recommendation and
compliance status as at
1 May 2022 Activities to date and actions to achieve compliance
Governance
continued
Describe
management’s role
in assessing and
managing climate
related risks and
opportunities.
Non-compliant
In June 2021, we launched our ESG steering group which is chaired by our CEO and
includes two members of our Operations Board. Since May 2022, climate-related
matters are a standing agenda item at the Group’s quarterly meetings.
During October and November 2021, our Head of Finance undertook a detailed
operational risk review. The review included individual meetings with each Operations
Board member covering current and emerging risks affecting their respective areas of
responsibility and broader corporate risks in other parts of the business. During the course
of this review process environmental (including climate change) risk was highlighted
and, following the conclusion of the review, was included in the updated risk register.
To support management in its assessment of climate-related risks we have engaged
a specialist ESG consultancy.
Planned actions
We will integrate climate governance into our risk management framework and
assign specific responsibilities to senior managers to ensure that climate-related
risks and opportunities are properly assessed and effectively managed. We will
also recruit a Sustainability Manager to champion our ESG strategy and coordinate
its implementation, including the implementation of new processes to ensure our
compliance with the TCFD recommendations.
Strategy Describe the climate-
related risks and
opportunities identified
over the short, medium
and long term.
Non-compliant
The review process undertaken to update our risk register identified a number of
climate-related risks and opportunities. These include risks that could impact our
supply chain and potential risks and opportunities in relation to growing consumer
demand for more sustainable products.
Planned actions
During H1 FY23, in conjunction with the specialist ESG consultancy, we undertook
a climate scenario analysis of the transition and physical risks and opportunities
that could impact our business. The findings were presented to and discussed with
Operations Board members during a climate-related risk workshop. The workshop
assessed how climate change may impact the business and how the risk may vary
over a short, medium and long-term period. A key focus of this assessment was to
agree on risk and opportunity classifications for the identified climate-related issues,
based on our existing risk classification process. Later in FY23, actions to mitigate
climate-related risks will be agreed and climate-related opportunities identified.
Thereafter this process will be undertaken on an annual basis.
Describe the impact of
climate-related risks
and opportunities on
businesses, strategy
and financial planning.
Non-compliant
Planned actions
Following the workshop highlighted above which assisted in the identification of
climate-related risks and opportunities we will assess and model their potential impact
on all aspects of our business including our financial performance. This assessment and
modelling and the review of their outcomes will be undertaken by senior management
and relevant Operational Board members. We also intend to develop a net-zero
strategy to inform emission reduction efforts as a part of our business strategy.
Describe the resilience
of strategy, taking into
consideration different
climate-related
scenarios, including a
2°C or lower scenario.
Non-compliant
We are committed to developing a strategy that considers climate-related issues. We
will seek to identify the areas where we can reduce our impact on the climate, and site
surveys and energy efficiency improvements are already underway across the business.
Planned actions
As highlighted above, in conjunction with the specialist ESG consultancy, we will
undertake a climate scenario analysis. Three scenarios will be considered, a below
2°C, a 2-3°C and an above 3°C scenario. The scenarios range from a warming pathway
where a smooth transition to a low carbon economy occurs to a warming pathway
where little climate action is taken. This range of scenarios allows us to review our
corporate strategy across a range of potential futures and build resilience accordingly.
ESG review continued
TCFD statement continued
TCFD compliance statement continued
TheWorks.co.uk plc Annual Report and Accounts 202232
Theme
TCFD disclosure
recommendation and
compliance status as at
1 May 2022 Activities to date and actions to achieve compliance
Risk management Describe the processes
for identifying and
assessing climate-
related risks.
Non-compliant
We have a process for identifying and assessing the risks that could impact our
business and implementing effective risk mitigation actions. See page 39.
Planned actions
As highlighted above we will integrate climate governance into our risk
management framework and assign specific responsibilities to senior managers
to ensure that climate-related risks and opportunities are properly assessed and
effectively managed.
Describe the processes
for managing climate-
related risks.
Non-compliant
Planned actions
As explained on page 32 climate-related risk was included in our updated risk register
for the first time this year. We maintain a more detailed secondary register to support
the day-to-day management of risks. In the coming year this secondary register will be
expanded to ensure effective management of our climate-related risks.
Describe how processes
for identifying, assessing,
and managing climate-
related risks are
integrated into overall
risk management.
Non-compliant
Planned actions
As highlighted above we will integrate climate governance into our risk management
framework and assign specific responsibilities to senior managers to ensure that
climate-related risks and opportunities are properly assessed and effectively managed.
To test strategic resilience and to ensure that our risk framework continues to be
effective, on an annual basis, we will undertake a climate scenario analysis. The Board
and Audit Committee will continue to review the business’ principal risks, including
climate change risk, twice per year.
Metrics & targets Describe the metrics
used to assess climate-
related risks and
opportunities in line with
the strategy and risk
management process.
Non-compliant
Planned actions
Emissions reduction will be our prime metric. We will develop appropriate
measures to assess and monitor our progress in line with our strategy and risk
management processes.
Disclose Scope 1, Scope
2, and, if appropriate,
Scope 3 GHG emissions,
and related risks.
Partially compliant
We have disclosed our Scope 1 and 2 emissions since 2019. During FY22 we introduced
a number of energy efficiency improvements (see page 30) to reduce our emissions
footprint. Understanding and monitoring our Scope 1 and 2 emissions means we are
better equipped to set realistic reduction targets and make a significant difference
in our communities.
Planned actions
In FY23 we will expand our emissions disclosure to include our Scope 3 emissions
and highlight material emissions categories. Calculations will be consistent with
the Greenhouse Gas Protocol (GHG Protocol) Corporate Value Chain standards.
Describe the targets
used to manage
climate-related risks
and opportunities
and performance
against targets.
Non-compliant
Planned actions
In FY23 we will calculate our emissions footprint, and, from this baseline, will formulate
emissions reduction targets and pathways. In future years we will report annual progress
against these targets to track progress.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 33
People
At the end of FY22 we employed over 3,800 permanent colleagues.
During our 2021 Christmas peak trading period we took on nearly
300 temporary seasonal colleagues.
In a challenging and competitive retail environment, our colleagues
are fundamental to the delivery of great customer service. They are
what makes The Works so special. In order to succeed we need to
attract and retain good people and our culture is key to that.
Culture and values
Our values, together with our purpose, shape and bring our culture
to life. Following clarification of our purpose, our strategy refresh
and evolution of our brand, we have reaffirmed our values to ensure
the culture we seek to foster is aligned with our updated purpose
and strategic priorities. To bring our values to life we have also
developed example behaviours which will be rolled out across
the Group in the coming year.
The sense of family that comes from working in our business and
the variety and fun that a career in retail can provide are what our
culture is based on. We believe more than ever that we are creating
something special that our colleagues (and future colleagues) want
to be part of, despite being in a competitive and ever challenging
environment. We stand out, for all the right reasons.
We continuously listen to colleagues across the Group and
encourage a two-way conversation around how best we can
improve and support them. The various channels we use are
described on page 24.
On an annual basis we invite our colleagues to participate in the
Best Companies ‘Make A Difference’ engagement survey. This well-
recognised third-party survey covers a number of areas including
Leadership, My Manager, Personal Growth, Wellbeing, Fair Deal and
Giving Something Back. Colleagues also have the opportunity to leave
open comments on what is great about working at The Works and
what could be better. 79% of our team completed the 2021 full survey
and we were awarded a two-star rating (with three stars being the
highest rating) in recognition of outstanding workplace engagement.
The survey provided us with valuable insights about our culture
and the issues that matter to our colleagues. Key findings from
the survey this year included:
•
Our scores in Leadership and Giving Something Back increased
and My Team and My Manager factors continued to generate
the highest scores. Compared to last year’s results, the lowest
scoring was in relation to Pay and Benefits, an area that had the
largest decline year on year, and the score in relation to Personal
Growth also declined slightly during the pandemic.
•
Our colleagues love their peers, our products and our focus on
giving back to the community through our product proposition.
•
Our health and wellbeing initiatives and our charitable partnerships
(see pages 35 and 37) continue to be relevant and popular.
•
Our improved communications, especially from leadership,
were also highlighted as a positive.
To continue the momentum and address areas where
improvements are required we have launched a new learning
and development system (see page 36). We are also:
•
creating a new internal communications strategy, including the
launch of a new communications, rewards and benefits platform
that will help enhance internal communications and offer
colleagues discounts with a wide range of retailers to help them
save money on essential and everyday purchases;
•
introducing Wellbeing Warriors to increase our focus on
colleagues’ health and wellbeing (see pages 35 and 36);
•
embedding our new partnership with the Retail Trust
(see page 35);
•
introducing hybrid working and providing relevant training
to our support teams to enable continued flexibility
in working arrangements.
Making a positive
social contribution.
Our objective is to make a positive contribution
to our people, our customers and the communities
where we operate.
Social
Crafty: for us, it’s about our ability
to be creative and agile; we are
able to adapt to change and be
smart about what we do, with the
resources we have. It’s what makes
us unique.
We care about each other as one
team. We care about our customers
and communities, our products
and every penny we spend. Caring
about the things we do is at the
heart of our work ethic.
Being Can-do means focusing on
what matters and getting it done.
Whatever the situation, we rise to it
because of the Can-do spirit and
resilience we all share.
Our values
ESG review continued
TheWorks.co.uk plc Annual Report and Accounts 202234
Health and safety
The health and safety (H&S) of all our colleagues and everyone who
visits our stores or any of our operations is of paramount importance.
During the year we continued to deploy additional safety measures
to manage COVID-19 risks. In line with Government guidance,
we provided personal protective equipment to all colleagues
working in our stores and at our Distribution and Support Centres.
Protective screens remained in place at all store till points and
two-metre distance signage was retained across all operations.
We have continued to undertake enhanced cleaning regimes and
flexible home-working arrangements are in place for colleagues
who can work from home. Until July 2021, in partnership with
Warwickshire Council, we arranged twice weekly COVID-19
testing for all colleagues at our Distribution Centre. Specific
risk assessments for each home nation based on Government
guidance were regularly undertaken and updated as and when
Government guidance changed.
40 years of fun
In September 2021 we marked our 40th anniversary
with a ’40 Years of Fun’ programme that
celebrated our people, and customers and the
communities where we operate. Activities included
80’s themed fancy dress events and competitions
and all colleagues received anniversary gifts. For
a time, staff discounts were increased to 40% and
a 40% discount was also offered to customers on
over 100 products.
We deploy a number of H&S policies including our main Health
and Safety Policy, and H&S processes are embedded in our
day-to-day operations. As part of their induction, all colleagues
participate in H&S training appropriate to their role and all retail
colleagues receive refresher H&S training on an annual basis.
In the coming year, our training programme will be expanded
and annual refresher H&S training will become mandatory for all
employees. Our H&S Manager and People team liaise with line
managers in all parts of the business to ensure compliance with
policies and procedures and ensure that all colleagues receive
appropriate training.
We operate a dedicated H&S Committee which meets on a
quarterly basis. Its members include representatives from all parts
of our operations and our H&S Manager. The overriding objective
of decisions taken at these meetings is to make our stores and
all our operations safe places to work and visit. Material issues
arising from the H&S Committee’s discussions are escalated to
senior management and the Board receives regular reports on
H&S matters.
During FY22 there were no fatalities (FY21: nil,) and 13 reportable
accidents (FY21: 1). 11 of these accidents occurred in our stores
and two occurred in our Distribution Centre. All accidents were
thoroughly investigated.
We take a proactive approach in relation to all H&S matters and
our aim is to continuously improve our H&S performance. To drive
this continuous improvement, during FY22 we launched a new
web-based portal and online reporting system which allows all
stores to immediately record accidents, incidents and near misses.
This real-time data and visibility across our entire store estate will
help us better understand risks and identify the most effective
mitigation. During the year, we also introduced a more streamlined
H&S checklist to be used by store managers. It focuses on things
they need to monitor daily during regular floor walks, including
identifying potential hazards and ensuring fire escape routes
are always kept clear.
Wellbeing
Supporting our colleagues is a key focus. Introduced in March 2020,
during the first national lockdown, The Works Family Facebook
page connects our colleagues in our ‘virtual home’ and serves as a
platform on which we regularly share health and wellbeing content
from specialist sources including the NHS, Mind, Retail Trust and
Get Self Help.
We also provide an Employee Assistance Programme for all
colleagues and in September 2021 we entered into a new
partnership with Retail Trust (www.retailtrust.org.uk), a long-
established charity, whose mission is ‘to create hope, health
and happiness’ for everyone in the retail sector. To date with the
support of Retail Trust:
•
over 50 of our senior leaders have participated in training in
relation to mental health and wellbeing management. During
FY23 this training programme will be available via our e-learning
platform, making it accessible to all managers;
•
our e-learning modules have been expanded to include 20 short
courses and resources on wellbeing and mental health and
during the year over 3,000 colleagues completed online training
in this area.
In FY23 we plan to introduce 50 Wellbeing Warriors. This network
of colleagues will be specifically trained to support the mental
Photo: Gavin Peck with Mike Crossley, one of The
Works’ founders.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 35
The gender diversity profile across the Group as at 1 May 2022 is
detailed below.
Male Female
Board
1
3/60% 2/40%
Operational Board
2
7/67% 2/33%
Direct
reports
3
23/59% 16/41%
Senior leadership
4
12/55% 10/45%
Other employees
5
1,040/27% 2,787/73%
1 The Board (see pages 48 and 49) includes three Non-Executive Directors
and two Executive Directors.
2 Information about the members of the Operations Board,
which includes the two Executive Directors, is available at
https://corporate.theworks.co.uk/who-we-are/our-leadership.
3 Direct reports to senior management (the Operational Board)
4 Senior leadership includes heads of department or equivalent.
5 Other employees includes all other colleagues who are
permanent employees.
Development and retention
Our colleagues are the heart of our business and we must retain
them and provide development opportunities.
We launched a new learning and development system during
summer 2022. This new system allows us to provide better
training to all colleagues. The new platform has also enabled
us to expand the scope of our training programme to include
modules focused on personal growth and development.
Our retail developmental programme ‘I can be..’ enables
colleagues to discuss their career aspirations with their line
manager and train accordingly, making good on our promise
to upskill colleagues ready for the next step in their career. The
programme also helps us create and maintain a strong talent
pipeline. Over 100 colleagues have joined the programme this
year and as we roll out the new learning system we expect this
number to double over the course of the next 12 months. We
are also launching a version of the programme across specific
departments within our Support Centre.
In June 2022 we introduced a new performance review
framework structured around clear objectives to ensure that
all colleagues are aligned with our purpose and our strategy.
The new framework also enhances our ability to support our
colleagues’ personal growth and development. In addition
to the formal review cycle, the new process includes informal
conversations in relation to performance, career development
and health and wellbeing. These regular ‘check-ins’ are intended
to promote more open, regular dialogue between managers and
colleagues and encourage colleagues to request discussions
about their development as and when required.
Wellbeing continued
wellbeing of their peers. They will act as an impartial, confidential,
listening ear and provide unbiased support to colleagues. In
particular, as required, they will help colleagues build confidence
to seek advice from professionals and provide information about
how to find relevant specialist support.
Diversity and inclusion (D&I)
It is important that we create an inclusive environment for all of our
colleagues regardless of gender, ethnicity, orientation, disability,
social mobility or age.
We are committed to creating an inclusive organisation, where
diversity is embraced and communities come together and where
we appreciate how important it is to belong. Our commitment is to
ensure everyone has equal opportunities to reach their potential
with us no matter who they are.
To improve D&I across the Group our D&I strategy aims to:
•
gain more insight and data covering age, gender, ethnicity,
LGBTQ+, disability and social mobility via surveys, questionnaires
and discussion forums;
•
introduce D&I colleague representatives who will help guide
this workstream;
•
review all relevant policies, procedures and practices, updating
and relaunching where required;
•
explore and utilise external partners to enhance learning and
support initiatives; and
•
introduce new D&I training across all levels within the organisation.
We are a signatory to the British Retail Consortium Better Jobs
Diversity and Inclusion Charter that aims to improve D&I across
the retail industry and help drive change. In line with the Charter’s
commitments and to support our own D&I strategy, we are currently
undertaking research and gathering baseline data to better
understand how diverse and inclusive the retail sector is and,
more importantly, how diverse and inclusive our colleagues believe
our business to be. The findings of this research project will be
available during summer 2022 and this information will assist us in
further developing our D&I strategy and ensuring its effectiveness.
During the year members of the Operational Board participated
in inclusive leadership and unconscious bias training and in the
coming year we will continue to roll out and support a range
of D&I initiatives across the Group.
Our 2022 Gender Pay Gap Report is available at https://corporate.
theworks.co.uk/who-we-are/corporate-governance/our-policies.
As at 5 April 2021, when measured as a median average, there is
no difference in the hourly rate of pay for our male and female
colleagues. However, measured as a mean average the hourly
rate of pay for male colleagues was 11.5% higher than female
colleagues. The reason for this is because we have more men than
women in senior leadership roles. Through implementation of our
D&I strategy we are working to address this.
ESG review continued
Social continued
TheWorks.co.uk plc Annual Report and Accounts 202236
Giving something back
Making a difference to society is not only a part of our ESG
responsibilities, but also part of our culture. Through our ‘Giving
Something Back’ programme we support charities, local causes
and the communities where we operate, including:
•
Cancer Research UK (CRUK): Our commercial and fundraising
partnership with CRUK began in August 2016 and since then
we have introduced a series of CRUK products, sold CRUK
materials on behalf of the charity, and participated in a range of
fundraising activities. By FY21 our fundraising in partnership with
CRUK totalled £1m, a significant achievement. During the year
momentum has continued and in FY22 we raised over £125k. Our
CRUK partnership is ongoing and we will continue to participate
in fundraising events and expand our CRUK product range in the
year ahead.
•
Mind/SAMH/Inspire partnership: In May 2021, at a time when
mental health concerns were very prevalent, we launched our
UK-wide partnership with Mind, the Scottish Association for Mental
Health and the Inspire Mental Health Consortium. Since launch,
our colleagues have undertaken a range of fundraising initiatives,
using nationally recognised events to help spread awareness and
raise money. Despite a challenging fundraising environment, in
FY22 over £75k had been raised. In the coming year fundraising
activities will continue, including the development of a ‘Be You’
range of products to raise further funds for Mind.
•
Payroll giving: We offer two schemes that enable colleagues to
make monthly charitable donations from their net pay. Through
Payroll Giving in Action colleagues can donate any amount to
any charity, while the Pennies from Heaven scheme enables
colleagues to donate the pennies from their payslips to our
charity partners.
•
Local support: Many of our stores are part of their local
community and often take part in community fundraisers or
support causes that their team and customers feel passionately
about. We love to see our caring colleagues make a difference
and encourage participation in local community activity,
supporting as best we can.
Our development
programme in action
“ I joined The Works in September 2016 on an
eight-week work experience placement. I was
then taken on as a temporary sales assistant
for the Christmas period and then applied for a
supervisor’s role at a new store that was opening
near me. My application was successful and
during the last five years I have worked my way up
from supervisor, to assistant manager, and then
into my current role as store manager.
I have learnt so much along the way and had
some incredible opportunities to grow and develop
within the business. Most recently I was selected
to become a Wellbeing Warrior and I have just
finished my training for this role which launches
later in the year. Being part of The Works means
you are part of a huge family. It is fast paced, fun,
and exciting and no two days are the same.”
Charli Carlin
Store manager at The Works.
Giving something back
“ We are so grateful to The Works for supporting
Mind as we help those of us affected by a
mental health problem. So far, the partnership
has raised an amazing £75k for Mind, SAMH and
Inspire, through in-store fundraising and events
organised by The Works’ staff. The money raised
will help support our services, like the Mind
Infoline, and the campaigning we do to ensure
that the one in four of us who experiences a
mental health problem each year does not face it
alone. We are excited to see how the partnership
will continue to grow next year, and achieve
great things.”
Juliana Oliver
Account Manager of The Works partnership at Mind
Photo: Charli, one of our store managers.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 37
We are fully committed to conducting business fairly, ethically
and with respect to fundamental human rights. This includes the
prevention of all forms of slavery, forced labour or servitude, child
labour and human trafficking, both in our business and supply
chains. Our Modern Slavery Statement is available at https://
corporate.theworks.co.uk/who-we-are/corporate-governance/
our-policies.
Supply chain management
We have developed an Ethical Trading Code of Conduct (Code
of Conduct) for our partners, manufacturers and suppliers, to
ensure that when our customers buy from us, they can be satisfied
that the goods have been produced without exploitation and
in acceptable and sustainable working conditions.
Our Code of Conduct clearly outlines our social and ethical
requirements, which include but are not limited to: child labour,
forced labour, safety standards, health and hygiene, associations,
environmental impact, discrimination and coercion, working hours
and wages and other fundamental human rights.
In order to ensure that our suppliers meet the social and ethical
standards we expect, we implement the following arrangements:
•
We require all suppliers to sign our Terms and Conditions of
Purchase which state the supplier has read and understood
and conforms to our Code of Conduct. These Terms and
Conditions of Purchase must be signed before we will
place orders.
•
We share our supplier manual with our suppliers to educate
them about our operating requirements. We also give clear
points of contact to ensure queries reach the appropriate
person and are dealt with quickly and effectively, with support
from relevant functions including merchandising, technical
and buying.
•
In partnership with TUV Rheinland, an independent specialist
in social responsibility auditing, we have developed a
bespoke supplier factory audit programme. Incorporated
within this programme are questions covering the prevention
of modern slavery, forced labour and child labour and other
fundamental human rights, which are detailed within our
Code of Conduct. Suppliers are encouraged to declare their
business relationships with individual factories that produce
for us, which provides us with a view of how sustainable our
supply chain is. Our audit programme (which also incorporates
a section on supplier capability and their QA functions) also
provides ethical visibility of suppliers and an understanding
of their production capabilities. During FY22 the scope of
the audit programme has been further developed to include
new assessment procedures that evaluate product safety
and provide suppliers with a clearer compliance route when
developing products for us.
•
We also conduct independent product testing as part of our
product surveillance test programme.
•
If a factory fails to have reached an acceptable standard
or there is any evidence of child labour or forced labour as
described in the Modern Slavery legislation, the factory will
be delisted and all orders will be cancelled.
Operating in a
responsible way.
We must maintain high standards of governance and operate
in a responsible way. It is the right thing to do. It is also essential
to maintain our reputation and protect our brand.
Governance
ESG review continued
TheWorks.co.uk plc Annual Report and Accounts 202238
Our risk management framework
The Board is responsible for ensuring that appropriate risk
management processes and controls are in place. The Board
has delegated responsibility for overseeing risk management
processes and controls to the Audit Committee. Day-to-day
risk management is the responsibility of the senior management
team. Further details of the governance structure are set out in the
Corporate governance report on page 50.
Risks are identified and assessed using a bottom-up review
process. Senior management determines the potential risks that
could affect their areas of responsibility and the likelihood and
impact. This information is used to create the Group’s primary
risk register and capture principal risks which are subsequently
considered by the Audit Committee and the Board.
Risk appetite
The Board determines the Group’s risk appetite. Where a conflict
exists between risk management and strategic ambitions, the
Board seeks to achieve a balance which facilitates the long-term
success of the Group.
Principal and emerging risks and changes in
principal risks
The Board conducts a robust assessment of the principal risks
facing the Group and emerging risks, including those that could
threaten the operation of its business, future performance or
solvency. The Board formally reviews the Group’s principal risks at
least twice a year.
A detailed operational risk review was undertaken by the Head of
Finance during October and November 2021. This review included
discussions with each Operations Board member covering current,
principal and emerging risks affecting their respective areas of
responsibility and broader corporate risks. Following this review, the
Group’s primary risk register and its principal risks and mitigation
plans were updated, and considered by the Audit Committee and
the Board in January 2022 and July 2022.
The principal risks and uncertainties facing the Group as at the
date of this Annual Report are set out in order of priority on pages
39 to 44, together with details of how these are currently mitigated.
The adjacent heatmap illustrates the Board’s assessment of the
likelihood of the principal risks occurring and the resulting impact,
after taking into account mitigating actions.
During the year the main changes to the principal risks were as follows:
•
Removal of store expansion risk: Store expansion activity and
specifically new store openings no longer represent a risk. The
Group’s strategy is now focused on optimising its store estate
and new store openings are no longer a strategic priority.
•
Addition of environmental (including climate change) risk:
Following the operational risk review described above this risk
is now considered to be a principal risk.
•
COVID-19: Reduced likelihood and impact of risks associated
with COVID-19.
•
As a result of experiencing a cyber-security incident in March 2022
we have significantly increased our cyber-security capabilities. As
a result, the risks of a similar event in the future causing significant
damage or disruption, have reduced. We continue to monitor our
systems diligently and implement appropriate mitigation measures.
The Group may be exposed to other risks and uncertainties not
presently known to management, or currently deemed less material,
that may subsequently have an adverse effect on the business.
Further, the exposure to each risk will evolve as mitigating actions
are taken or as new risks emerge or the nature of risks change.
Risk heatmap
Risk management and principal risks and uncertainties
Effective risk management
helps us identify, evaluate
and manage the risks which
could impact the business,
Low Likelihood High
Low Impact High
3
21
4
7
6
5
8
9
12
11
10
*
Increased
Decreased
Unchanged
Principal risks
1 Economy
2 Market
3 IT systems and cyber-security
4 Supply chain
5 Brand and reputation
6 Regulation and compliance
7 Seasonality of sales
8 People
9 Business continuity
10 Environmental
(including climate change)*
11 Liquidity
12 COVID-19
Change from prior year
* New risk
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 39
Risk, profile change and link to strategy Mitigation
1. Economy
A deterioration in economic conditions or a reduction in consumer
confidence could impact customer spending and have an adverse
effect on the Group’s revenue and profitability.
Change from prior year
Increased risk level. COVID-19 trading restrictions were lifted at the start
of FY22, and the direct economic risks connected with the pandemic
are now lower. However inflation and the current cost of living challenge
could impact consumer spending and as a result the Group’s sales.
The current economic environment, including the following issues, is
also driving increased costs which could impact profitability should
sales decline:
•
supply chain costs described below.;
•
raw materials and energy costs;
•
increases in National Living and Minimum Wages given most of the
Group’s colleagues are paid the National Minimum or Living Wage;
•
the war in Ukraine; and
•
FX rates.
Link to strategy
•
The Group’s proposition as an alternative to full price
specialist retailers positions it well for customers looking
to trade down in times of economic uncertainty.
•
Monitor sales on a daily basis and ongoing review of pricing
and margins.
•
Review sales trends data at weekly trading meetings attended
by experienced senior management and, if required, agree
and implement mitigating actions to drive sales and/
or reduce costs. Take account of expected impact in the
Group’s strategic planning process, budgets and forecasts.
•
Continue to focus on cost control across the business while
making carefully considered investments in certain areas
to support the Group’s growth strategy.
•
Increase the use of direct sourcing as part of a three-year
plan to improve the margin on key products purchased. This
has been delayed by the ongoing effects of COVID-19 in
China, the Group’s key supply source.
•
FX hedging policy in place to smooth the short-term
effects of exposure to foreign exchange rate fluctuations
(substantially all FY23 USD requirements hedged) and
continue to hedge energy costs as appropriate.
•
Operate store estate on flexible short-term property leases
to ensure the Group benefits from reductions in rental costs
through the rolling renegotiation of its leases and can flex its
store estate relatively quickly in the event of material local
changes in demand.
2. Market
The Group generates its revenue from the sale of books, toys, arts
and crafts and stationery products.
Although it has a track record of understanding customers’ needs
within these categories, the market is competitive. Customers’
tastes and shopping habits can change quickly. Failure to effectively
predict or respond to changes could affect the Group’s sales and
financial performance.
Change from prior year
Unchanged level of risk.
Link to strategy
•
Focus on development of our brand and increasing customer
engagement is designed to further differentiate the Group
from competitors.
•
Emerging trends monitored by a recently strengthened
trading team that has a proven track record of responding
to changing consumer tastes.
•
Closely monitor competitors’ propositions and discuss key
developments at weekly trading meetings and at Board level
on a regular basis.
•
Monitor and review customer feedback.
•
Use sales data and online feedback channels to inform
purchasing and marketing decisions.
•
Flexible lease terms allow the Group to adapt its store
portfolio (which continues to be highly relevant to customers)
to react to changes in local market conditions.
•
Ongoing investment in the Group’s online capability will
ensure that it remains relevant as customers shopping
behaviours increasingly involve online engagement prior
to store purchases as well as those made directly via
the website.
Risk management and principal risks and uncertainties continued
TheWorks.co.uk plc Annual Report and Accounts 202240
Drive operational
improvements
Optimise our
store estate
Develop our brand and increase
customer engagement
Enhance our
online proposition
Risk, profile change and link to strategy Mitigation
3. IT systems and cyber-security
The Group relies on its IT systems for many aspects of its operation.
Failure to develop and maintain these systems, or any prolonged
system performance problems or cyber-attack, could affect the
Group’s ability to trade and/or could lead to significant fines and
reputational damage.
Change from prior year
The Group experienced a cyber-security incident at the end of March
2022, which temporarily affected till systems and replenishment
deliveries to stores and delayed the fulfilment of online orders. Action
was taken swiftly to protect the business, which reduced the immediate
threat and enabled trade to continue online and in the majority of
stores. As part of the operational recovery plan we have embedded
significantly increased security capabilities across the business, which
has taken more time than merely reinstating the previous arrangements
after scanning for residual security issues. While this lengthened
process has created a degree of short-term operational difficulty, it has
resulted in a significant reduction in the risk of the business suffering
major loss or disruption in the event of a future cyber-security incident.
Link to strategy
•
Systems and data are key to the execution of the strategy.
Ensuring systems and processes are fit for purpose will deliver
efficiency and capability improvements.
•
Significantly enhanced IT security across all operations
including upgraded malware detection and response
capability to detect, defend and isolate any attack,
introduced extensive network segmentation to limit the
progress of any attack and established a new Security
Operations Centre to monitor and respond to any unusual
activities in our systems or networks.
•
Refreshed mandatory training for colleagues to raise
awareness of cyber-security issues.
•
Enhanced working from home capabilities established
in response to the pandemic have reduced the level of
dependence on a single site head office.
•
Regular IT investment strategy review undertaken by the
Operating Board including security and infrastructure
investment programmes.
•
Further strengthened in-house IT capabilities during FY22.
•
Diligent monitoring of systems on an ongoing basis.
4. Supply chain
The Group uses third parties, including many in Asia, for the supply of
products. This creates a number of potential areas of risk, including the
potential for supplier failures, risks associated with manufacturing and
importing goods from overseas, potential disruption at various stages
of the supply chain and suppliers failing to act or operate ethically.
Supply chain disruption has been heightened due to COVID-19 resulting
in uneven demand and supply patterns. During FY22, the main supply
chain impact was a very significant increase in ocean freight rates and
difficulty importing stock due to problems in the ocean freight system.
Due to the Group’s low level of exposure to sales outside the UK, risks
connected with Brexit are low, albeit there still remains a higher level of
complexity than previously in exporting goods to the Group’s ten stores
in Ireland.
Change from prior year
Unchanged level of risk.
Link to strategy
•
Buying and supply chain teams strengthened progressively
since mid-2020.
•
Ongoing review of supplier base and diversification and
change implemented as appropriate to provide flexibility
and reduce reliance on individual suppliers.
•
Independent monitoring of suppliers undertaken by
third-party auditors with local country knowledge and
an understanding of social and ethical requirements
(see page 38).
•
Developed a series of product technical requirements that
provide guidance for our buyers and suppliers during product
sourcing, development and manufacture.
•
In-house product quality assurance team undertakes
product testing as part of a product surveillance test
programme.
•
Implement policies that reinforce the Group’s values and
its commitment to conduct business fairly, ethically and
with respect to human rights which suppliers are required
to adhere to (see page 38).
•
Proactive management of supply chain to ensure stock levels
are appropriate.
•
Continue to review freight costs (including measures to
mitigate such costs) and monitor alternative sourcing
arrangements where practicable.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 41
Risk, profile change and link to strategy Mitigation
5. Brand and reputation
Protecting and enhancing the reputation of the Group’s key brand
asset – ‘TheWorks.co.uk’ – is vital to the Group’s success. Failure to
protect the brand, in particular product quality and safety, could
result in the Group’s reputation, sales and future prospects being
adversely affected.
Change from prior year
Unchanged level of risk.
Link to strategy
•
Developing our brand and increasing customer engagement
are strategic aims. During the year we evolved and
modernised our brand which will be rolled out across the
business during autumn 2022.
•
In conjunction with our brand evolution, communicate
to colleagues our clarified purpose and values.
•
Provide intellectual property guidance and education
to design and sourcing teams.
•
Monitor customer product reviews and take appropriate
action to remove products from sale and take other actions
as appropriate where quality issues are identified.
•
In-house product quality assurance team works with suppliers
to ensure product quality, safety and ethical production.
•
Conduct third-party technical and ethical audits.
•
Monitor the Group’s ESG responsibilities (see page 31)
including the processes in place to ensure the Group
operates in a responsible way.
6. Regulation and compliance
The Group is exposed to a growing number of legal and regulatory
compliance requirements including the Bribery Act, the Modern Slavery
Act, the General Data Protection Regulation (GDPR) and the Listing
Rules. Failure to comply with these laws and regulations could lead to
financial claims, penalties, awards of damages, fines or reputational
damage which, in some cases, could be material and could significantly
impact the financial performance of the business.
There are significant laws and regulations (including reporting
and disclosure requirements) surrounding climate change and
environmental reporting. Failure to comply with these could result in
financial penalties, legal consequences and/or reputational damage.
Change from prior year
Higher risk level. Regulatory requirements relating to climate change
and environmental reporting have increased, which increase this risk
level. The Group is now subject to the TCFD disclosure requirements.
Link to strategy
•
Oversight of regulatory compliance by CFO and Company
Secretary with support from external advisers.
•
Implement policies and procedures in relation to mandatory
requirements and measures the Group has adopted voluntarily.
•
Operate a Whistleblowing Policy and procedure which
enables colleagues to confidentially report any concerns
or inappropriate behaviour.
•
Operate a GDPR Policy which is overseen by a data
supervisor and monitored by members of a GDPR
governance monitoring group who meet regularly and report
key issues to the senior management team.
•
Retain experienced advisers where necessary to cover gaps
in expertise in the in-house team.
•
Entered into a partnership with Salford Trading Standards,
one of ten local trading standards authorities, to access
greater consensus on regulatory interpretations and new
legislation, particularly following Brexit.
Risk management and principal risks and uncertainties continued
TheWorks.co.uk plc Annual Report and Accounts 202242
Risk, profile change and link to strategy Mitigation
7. Seasonality of sales
The Group historically makes all of its profit in the second half of the
financial year, with the peak Christmas trading period contributing
substantially all of this. Interruptions to supply, adverse weather or a
significant downturn in consumer confidence in this period could have
a significant impact on the short-term profitability of the Group.
Change from prior year
Unchanged level of risk.
Link to strategy
•
Continue to focus on reducing seasonality, where possible,
by growing the year-round appeal of the proposition.
•
Hold weekly trading meetings to ensure that immediate
action is taken to maximise sales based on current and
expected trading conditions.
•
Enhanced online fulfilment operation to increase capacity
during the peak season.
8. People
The Group’s success is dependent on the quality of the Board and
senior management team. A lack of effective succession planning and
development of key colleagues could harm future prospects.
Change from prior year
Reduced risk level compared to the previous year following recent
appointments to the Operations Board and senior management team.
Link to strategy
•
Continue to develop succession plans which are discussed
at Nomination Committee meetings.
•
Establishing development programmes to support future leaders.
•
Well-managed search and recruitment processes, together
with appealing proposition and welcoming culture, enables
recruitment of high-calibre executives.
•
Implement a Remuneration Policy designed to ensure
management incentives support the Group’s long-term
success for the benefit of all stakeholders, including a Long
Term Incentive Plan for Executive Directors and restricted
share awards for Operations Board members. For further
details see page 64 to 71.
9. Business continuity
Significant disruption to the operation, in particular internal IT systems,
the Support Centre or the Distribution Centre, could severely impact the
Group’s ability to supply stores or fulfil online sales resulting in financial
or reputational damage.
Change from prior year
Reduced risk as described above due to the implementation
of additional security measures following cyber-security incident.
Link to strategy
•
Business continuity plan in place including system recovery.
Following the cyber-security incident referred to above, this
plan has been enhanced in a number of areas including the
implementation of new cloud-based back-ups which improve
the flexibility of any disaster recovery plan response. Further
enhancements are planned in the coming year including
subscription to a cloud-based technology recovery centre
to improve system recovery speed and execution.
•
Undertake disaster recovery dry run exercises. The scope of
these exercises has been updated and a number of dry runs
will take place in FY23.
•
Emergency generator installed at the Group’s Support Centre
to insulate the business from the impact of power cuts.
•
Maintain appropriate business interruption insurance cover.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 43
Risk, profile change and link to strategy Mitigation
10. Environmental (including climate change)
There is an increased focus on sustainable business from consumers
and regulators. In our business this applies to products and packaging
in particular. Failure to respond to these demands could affect the
Group’s reputation, sales and financial performance.
Supply chain disruptions as a result of extreme weather events could
damage operations, in particular the flow of stock which could
adversely impact sales.
There are increased reporting and disclosure requirements relating to
climate change and environmental impact including new taxes. See
also Regulations and compliance risk above.
Change from prior year
New risk this year.
Link to strategy
•
Initiatives to reduce our impact on the environment are
being implemented, for example, reducing waste packaging
in products sold and in parcel delivery packaging for
online sales, and reducing our use of single use plastic
(see page 29).
•
Engaged a specialist ESG consultancy to assist in the
development of the Group’s environmental strategy and
ensure compliance with TCFD requirements (see page 31).
•
Recruiting a Sustainability Manager to lead and implement
our environmental strategy.
•
Working with our third-party logistics providers to explore
and invest in energy efficient solutions within the supply
chain process.
11. Liquidity
Insufficient liquidity available and/or insufficient headroom in
banking facilities. Potential for breach of banking covenants if
financial performance deteriorates significantly compared with plans.
Availability of credit insurance to suppliers may be reduced or removed
resulting in an increased cash requirement.
Change from prior year
Strengthened balance sheet and less capital intensive strategy reduce
this risk to a lower level than the previous year. A new revolving credit
facility has also recently been secured and increased to £30m.
Link to strategy
•
Financial forecasts and covenant headroom monitored
and reported to the Board monthly.
•
Strategy focuses on driving LFL sales and improving
efficiency, rather than previous store rollout plan, which
is a lower risk, less capital intensive strategy.
•
The bank facilities have been increased to £30m and
extended to 30 November 2025.
12. COVID-19
The risks relating to COVID-19 appear to have reduced significantly
since last year. The residual risks are:
•
the potential for medium-term adverse economic impact following
the cessation of Government support schemes; and
•
further supply chain disruption due to restrictions potentially being
maintained in certain parts of the world, particularly China, which
could cause disruption to stock availability and cost inflation.
Change from prior year
The risk is deemed to be lower than that reported at the prior year end,
following the successful roll-out of the vaccination programme and the
removal of Government restrictions.
Link to strategy
•
Continue to prioritise and promote the health and wellbeing
of colleagues, customers and the wider community.
•
Focus on maximising the potential of the business in the
broadest sense to increase its resilience.
•
The Group is now better able to flex its online fulfilment
capacity to meet demand in the event of any future
restrictions being imposed on retail store trading.
•
Successful navigation through the pandemic demonstrated
the relevance of the Group’s proposition to customers and
its ability to react to such an event.
Risk management and principal risks and uncertainties continued
TheWorks.co.uk plc Annual Report and Accounts 202244
In accordance with provision 31 of the UK Corporate Governance
Code dated July 2018 (the “Code”), the Directors have assessed
the prospects and viability of the Group over a three-year period,
taking into account the Group’s current position and the potential
impact of the principal risks documented in this report.
The Directors consider that three years is an appropriate planning
horizon for the following reasons:
•
retail market trends evolve rapidly, including the way customers
shop and the impact of new technologies. The uncertainty as to
how the market will have evolved more than three years into the
future is considered too great to enable plans extending beyond
this period to be meaningful;
•
uncertainty exists in relation to the wider economy and its
potential impact on consumer demand and shopping habits;
•
the average remaining term of the Group’s property portfolio
leases is approximately three years.
The text which follows closely reflects the text in Note (1) (b) (i) of the
financial statements, relating to the preparation of the accounts
on a going concern basis.
The Group operates a three-year plan (covering the FY23 to FY25
financial years/periods), referred to as the ‘Base Case’ scenario.
In addition, a ‘severe but plausible’ ‘Downside Case’ sensitivity
has been prepared to support the Board’s viability assessment,
by stress testing the Base Case to indicate the financial headroom
resulting from applying more pessimistic assumptions. These
models are described in more detail below.
In assessing the Group’s viability the Directors have considered:
•
the external environment;
•
the Group’s financial position including the quantum and
expectations regarding availability of bank facilities;
•
the potential impact on financial performance of the risks
described in the Strategic report;
•
the output of the Base Case scenario, which represents the
Group’s estimate of the most likely financial performance over
the forecast period;
•
the measures to maintain or increase liquidity in the event of
a significant downturn in trading
•
the resilience of the Group to these risks having a more severe
impact, evaluated via the Downside Case which shows the
impact on the Group’s cash flows, bank facility headroom and
covenants; and
•
the response to situations in which consumer market conditions
are even more severe than the downside Case.
These factors are described below.
External environment
The risks which were most prominent in the Board’s consideration
of the viability of the business are those relating to the economy
and the market, with the nature of these risks having altered
significantly since last year’s Annual Report. COVID-19 was the
dominant factor in making this judgement in relation to the
financial statements for FY20 and FY21 but the Board’s assessment
is that there is now only a residual risk associated with this. Instead,
the risk of weaker consumer demand is now considered to be the
greatest risk, due to the factors that have been widely reported
externally in recent months, including a higher level of inflation and
concerns about its effect on household budgets and consumer
spending on discretionary items.
The potential adverse impact on trading in the event of a further
weakening of consumer demand due to general economic or
market weakness is considered to be of a smaller magnitude than
the impact of the full national lockdowns which were experienced
during periods of the COVID-19 pandemic.
Risks relating to Brexit are not considered significant for the
Group and therefore are not expected to have any bearing
on the viability assessment.
Financial position and bank facilities
The cash and borrowings of the Group at the period end are shown
in Notes 19 (Cash and cash equivalents) and 20 (Borrowings) of the
financial statements. In addition, Note 25 (Financial instruments)
describes the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its
exposure to credit risk and liquidity risk.
At 1 May 2022 the Group held net cash (excluding lease liabilities)
of £16.3m (FY21: net cash (excluding lease liabilities) of £0.8m).
The Group’s bank facilities were renewed in June 2022, and
now comprise a larger revolving credit facility (RCF), increased to
£30.0m, which terminates at the end of November 2025. The facility
includes two financial covenants which are structured in a way that is
typical for a retail business of this size. The covenants are tested quarterly:
1. the level of net debt to LTM (last 12 months’ rolling) EBITDA; and
2. the ‘Fixed Charge Cover’ or ratio of LTM EBITDA prior to
deducting rent and interest, to LTM rent and interest.
The bank facility is larger than the Group expects to use, and has
been sized in this way to provide the Board and stakeholders with
additional assurance as to the availability of liquidity during the
viability assessment period, given the current heightened levels
of uncertainty as regards the economy and external environment.
Potential impact of risks on financial scenarios
The ‘Principal risks and uncertainties’ section of the Strategic
report, on pages 39 to 44, sets out the main risks that the Board
considers could threaten the Group’s business model, future
performance, solvency or liquidity.
It is considered unlikely that all the risks would manifest themselves
to adversely affect the business at the same time. The Directors
have estimated what the most likely combination of risks might
be that could materialise within the forecast period and how the
business might be affected; this combination of risks is reflected
in the Base Case assumptions.
As noted above, the most prominent risks in the near term are
considered to be the risk of lower consumer spending due to a
weakened economy, which could affect sales, costs and liquidity.
During FY22 the Group experienced a cyber-security incident.
This had a limited immediate/direct impact on trading towards
the end of FY22 and there was a residual effect on trading during
early FY23 as the Group took the decision to implement a very
cautious and low risk approach to reinstating its systems, whilst
simultaneously introducing significantly strengthened cyber-security
measures. As a result of these measures the Board considers that
the risk of a material impact from any future cyber-security attack
is lessened.
The Downside Case scenario takes into consideration the same
risks as the Base Case but assumes that their effects are more
severe, especially the level of disruption that could be experienced
if consumer spending weakens significantly from its already
reduced level, during the coming peak trading season.
Base Case scenario
The Base Case scenario assumptions are aligned with the Group’s
internal forecast:
•
during FY22 sales were adversely impacted during the peak
trading season by significant disruptions to the flow of stock into
the business due to problems in the ocean freight system and
store sales were also affected by the Omicron COVID-19 variant.
Viability statement
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
TheWorks.co.uk plc Annual Report and Accounts 2022 45
Viability statement continued
Base Case scenario continued
•
The Base Case assumes that sales are not affected by these
factors during the going concern period;
•
online sales levels during the early part of FY23 have been
lower than expected. The Base Case assumes that online sales
improve from their recent levels but not to the level initially
expected, despite the fact that the Group plans to implement
measures to improve online sales;
•
the gross margin assumptions include provision for the
continuation for a longer period than initially expected of higher
than normal ocean container freight costs, until the end of FY23.
Thereafter it is assumed that any reduction in freight rates will,
broadly, be offset by a less favourable currency exchange rate
than the hedged rate during FY23;
•
the Base Case provides for known or expected inflationary
increases including those associated with significantly higher
electricity prices which are assumed to double and not reduce
during the forecast period, and wage rates including further
increases in the National Living Wage;
•
capital expenditure levels are in line with the Group’s strategic
plan, which would enable a reduction in capital expenditure in
the event of a Downside scenario occurring; and
•
the Base Case allows for the resumption of dividend payments.
Under the Base Case scenario, the Group’s forecasts show that
it will not draw on its bank facility at any point. Whilst it may
not be relevant given it is not envisaged that the facility would
be used under the Base Case scenario, nevertheless the Base
Case indicates that the financial covenants are complied with
at all times.
The output of the Base Case model scenario therefore indicates
that the Group would have sufficient financial resources to
continue to be viable over the forecast period.
Measures to maintain or increase liquidity
During the COVID-19 pandemic the Group demonstrated that it
was capable of taking measures to maintain or improve liquidity,
and subsequently, during FY22, the Group has continued to
generate positive cash flow.
If deemed necessary, mitigating actions would be taken in
response to a significant downturn in trading, which would
increase liquidity. These may include, for example, delaying and
reducing stock purchases, stock liquidation, reductions in capital
expenditure, the review of payment terms and the review of
dividend levels. Some of these potential mitigations have been
built into the Downside Case model, and some have been noted
as additional measures that may be taken in practice in the event
of that scenario, or worse, actually occurring.
Severe but plausible Downside Case scenario
The Downside Case makes the following assumptions to reflect
more adverse conditions compared to the Base Case:
•
store LFL sales are assumed to be lower than the Base Case
during the peak period prior to Christmas 2022, to allow for the
possibility that consumer spending is adversely affected for the
reasons described above. Recent store sales levels have been
slightly above the Base Case level;
•
online sales are assumed to be lower than in the Base Case,
reflecting the possibility that the recent performance is due to
external factors beyond our control, such as a shift in consumer
shopping patterns away from online sales, and/or the failure by
the Group to successfully implement some or all of its plans to
improve the online sales performance;
•
the gross margin assumptions are consistent with the Base Case,
which the Board believes already takes a sufficiently cautious
view of expected freight rates, even allowing for a severe but
plausible Downside scenario; and
•
volume related costs in the Downside Case are lowered where
they move directly with sales levels; for example, online fulfilment
and marketing costs are assumed to reduce to correspond with
the lower online sales. The model also reflects certain steps
which could be taken to mitigate the effect of lower sales levels,
depending on management’s assessment of the situation at the
time. These include adjustments to stock purchases, reducing
capital expenditure, reductions in headcount or labour usage,
a reduction in discounts allowed as part of the Group’s loyalty
scheme and suspending the payment of dividends.
Under the Downside Case scenario, due to the mitigations built into
the model, the Group’s forecasts show that it will not draw on its
bank facility. Again, whilst it may not be relevant if the facility is not
actually required, nevertheless the Downside Case also indicates
that the financial covenants are complied with.
Having considered the output of the Downside Case and the
additional mitigating steps available, the Board’s conclusion is that
the business would continue to have adequate resources to continue
in operation under this severe but plausible set of assumptions.
Consideration of more severe scenarios
Given the current rate of inflation and its potential impact on
consumer confidence and spending, the Board believes that
the Works value proposition positions it well to benefit from any
tendency consumers may have to trade down in pursuit of better
value. However, the Board also recognises that more severe
downside scenarios than those modelled might arise.
Accordingly, it has considered a range of more severe
possibilities than are reflected in the Downside Case, including
a 10% reduction in sales between January 2023 and April 2024
on the basis that consumers may prioritise Christmas, but cut
back on spending thereafter if their disposable incomes reduce
for a sustained period. In these circumstances, in addition to
the measures included in the Downside Case, further mitigating
measures would be required and are available, which when
implemented would generate additional profit and/or cash and
provide further liquidity headroom and/or further headroom in
relation to the financial covenants. Such measures could include
further reductions in capital expenditure and further reductions
in discretionary expenditure in areas such as travel, training and
professional fees.
Conclusion regarding viability
The current economic environment, characterised by higher
inflation than has been experienced for a number of years, and a
high level of uncertainty about how long the situation will persist
and whether it will become worse before it improves, creates a
higher than normal level of uncertainty with regards to the strength
of consumer spending. However, the Board’s assessment is that,
despite this, the overall level of risk is not as high as represented
by COVID-19, which resulted in a complete inability to operate the
majority of the Group’s business for significant periods of time. The
resilience demonstrated by the business during those periods, in
very challenging conditions, provides additional assurance about
its viability in the event of an extended economic downturn due to
high inflation etc.
Based on all of the above considerations, the Directors believe that
the business will remain viable for at least the forecast period.
TheWorks.co.uk plc Annual Report and Accounts 202246
Dear shareholder,
This is my first Corporate governance report since my appointment
in September 2021. It covers key developments during the year
ended 1 May 2022, how our governance framework has operated
and our plans to evolve our processes in the future.
The Board remains fully committed to implementing the highest
standards of corporate governance, and I am pleased to report that
it has applied the principles of the 2018 UK Corporate Governance
Code in so far as it applies to smaller listed companies (below the
FTSE 350).
During FY22, our business continued to be disrupted by the
pandemic. In addition, uncertainty relating to the external
environment and the resulting impact on consumer spending
began to affect the rate of sales growth in the second half of
the year. Towards the end of the year, we also experienced
some disruption to trading and business operations as a result of
a cyber-security incident.
The Board has continued to focus on protecting the health
and safety of our colleagues and customers, whilst ensuring the
long-term financial security of the business. The Board is extremely
grateful to all of our colleagues for the patience, hard work and
commitment they continued to demonstrate during the pandemic.
During the year we have continued to embed our governance
arrangements, focusing in particular on ensuring that the
governance framework supports the delivery of the Company’s
refreshed strategy. We have also continued to monitor and assess
the Company’s culture to ensure that it reflects our values and is
aligned with our strategic ambitions.
During the year our ESG steering group, which is led by our CEO,
assisted the Board in rigorously monitoring the Company’s ESG
agenda and associated responsibilities. Information about the ESG
steering group’s activities during the year, together with an update
on ESG developments and priorities for the future, are included on
pages 28 to 38.
Following our annual Board and Committee performance
evaluation I am pleased to report that overall the evaluation
found that the Board functions very effectively and a summary
of the findings and proposed actions can be found on page 52.
We look forward to meeting shareholders at our forthcoming Annual
General Meeting (AGM), which will be held on 27 October 2022.
Further details will be set out in the Notice of AGM.
Carolyn Bradley
Chair
23 September 2022
Chair’s governance introduction
We have continued to
embed our governance
arrangements, focusing
in particular on ensuring
that the governance
framework supports the
delivery of the Company’s
refreshed strategy.
TheWorks.co.uk plc Annual Report and Accounts 2022 47
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Board of Directors
Carolyn Bradley
Chair and Non-Executive Director
Date of appointment
September 2021
Committee membership
Chair of the Nomination Committee and
member of the Remuneration Committee.
Relevant skills and experience
•
Extensive retail, marketing and
commercial experience in executive and
non-executive roles including 25 years at
Tesco plc where her roles included Group
Brand Director, UK Marketing Director and
Chief Operating Officer for Tesco.com.
•
Significant consumer experience
including leading Tesco’s Clubcard
loyalty scheme, the ‘Every Little Helps’
service campaign and the grocery
home delivery business.
Current external appointment
Independent Non-Executive Director
at B&M European Value Retail S.A. and
a member of its remuneration committee,
audit & risk committee and nomination
committee, as well as designated
Non-Executive Director for workforce
engagement. Senior Independent Director
and Chair of the Remuneration Committee
of SSP Group plc, Non-Executive Director
of Majid Al Futtain Retail LLC and The
Mentoring Foundation and a Trustee
of Cancer Research UK.
Catherine Glickman
Independent Non-Executive Director
Date of appointment
July 2018
Committee membership
Chair of the Remuneration Committee
and member of the Audit and
Nomination Committees.
Relevant skills and experience
•
Significant retail experience as Group HR
Director of Genus plc, having previously
held the same role at Tesco plc where she
led retail management development and
customer service training during a period
of significant expansion in the UK and
overseas. Prior to this she held positions
at Somerfield and Boots.
•
Extensive people and reward expertise
having developed reward structures that
align leadership motivation with strategy
at both Genus plc and Tesco plc.
Current external appointments
Non-Executive Director and Chair of the
Remuneration Committee at Renishaw plc.
Harry Morley
Senior Independent Non-Executive Director
Date of appointment
July 2018
Committee membership
Chair of the Audit Committee and member
of the Nomination and Remuneration
Committees.
Relevant skills and experience
•
Extensive retail and consumer
experience, including as co-founder
of Tragus Holdings Ltd, owner of Café
Rouge and Bella Italia restaurant
chains and a Non-Executive Director
of Bibendum Wine Holdings Ltd.
•
Significant financial and commercial
expertise as Chief Financial Officer of
Tragus Holdings Ltd and CEO of Armajaro
Asset Management LLP. He also held
senior management roles at P&O.
•
Chartered accountant.
Current external appointments
Non-Executive Director and Chair of the
Audit Committee at JD Wetherspoon plc
and The Mercantile Investment Trust plc and
a Trustee of the Ascot Authority. Director of
Cadogan Group Limited and two related
subsidiary companies.
N A AN NRR R
TheWorks.co.uk plc Annual Report and Accounts 202248
Gavin Peck
Chief Executive Officer
Date of appointment
January 2020
Committee membership
None
Relevant skills and experience
•
Significant financial, retail and
commercial expertise, including as Chief
Financial Officer of The Works, and, prior
to that, as Commercial Director at Card
Factory plc where he was responsible for
the commercial function (buying, space
and merchandising) and leadership of
the commercial finance team. He played
a key role in the successful IPO of Card
Factory in 2014 and its subsequent
growth and evolution as a listed business.
•
Chartered Accountant, having started
his career at PwC where he spent eight
years working in the audit and corporate
finance departments.
•
Joined The Works as CFO in April 2018,
overseeing the IPO and serving as an
executive director of TheWorks.co.uk plc
since the IPO in July 2018.
Current external appointments
None
Steve Alldridge
Chief Financial Officer
Date of appointment
May 2021
Committee membership
None
Relevant skills and experience
•
Significant financial and retail expertise
having initially joined The Works on an
interim basis as CFO in June 2020. Prior
to that, over 20 years’ experience of
working in retail, most recently as CFO
of Bonmarché Holdings plc, where he
led a highly effective finance function,
and completed several significant
transactions, including a private equity
backed management buyout, and
two stock market listings. Previously he
worked at Peacocks, the discount retailer,
and chartered accountants EY.
•
Chartered accountant.
Current external appointments
None
Committee membership
Audit Committee
Nomination Committee
Remuneration Committee
Chair of Committee
A
N
R
2020++4040++4040++NN
Tenure
0–1 years 20%
1–3 years 40%
3–5 years 40%
Male 60%
Female 40%
6060++4040++NN
Gender
Experience
Retail
Consumer
Finance
PLC
100%
60%
100%
100%
TheWorks.co.uk plc Annual Report and Accounts 2022 49
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
UK Corporate Governance Code – compliance statement
The Company has applied all of the principles of the UK Corporate Governance Code (the Code) as they apply to it as a ‘smaller
company’ (below FTSE 350) and has complied with all relevant provisions of the Code during the year. Full details of the Code are
available at www.frc.org.uk. Details explaining how the Company has applied the principles of the Code can be found throughout
this Annual Report.
Governance structure
Board
•
Overall leadership of the Group.
•
Oversight of systems of internal control, risk management
and corporate governance.
•
Sets strategy, purpose, values and culture.
•
Approves major contracts.
•
Approves business plan and budget.
The Board has delegated a number of its responsibilities to the Audit Committee, Nomination Committee and Remuneration
Committee. Each Committees’ terms of reference and the Schedule of Matters Reserved to the Board, are available at
https://corporate.theworks.co.uk/who-we-are/corporate-governance.
Audit Committee Nomination Committee Remuneration Committee
•
Reviews annual and interim
financial statements.
•
Reviews accounting policies and financial
reporting and regulatory compliance.
•
Reviews internal control system.
•
Monitors processes for internal audit, risk
management and external audit.
•
Monitors independence of external and
internal auditors.
•
Oversees relationship with external auditor.
•
Identifies and nominates appointments
to the Board.
•
Reviews NED time commitments.
•
Oversees succession planning.
•
Reviews size and composition of
the Board.
•
Promotes diversity.
•
Responsible for undertaking annual
performance evaluation of the Board,
its Committees and individual Directors.
•
Sets Remuneration Policy.
•
Determines Executive Director and
senior management remuneration.
•
Approves annual bonus plan and
Long-Term Incentive Scheme targets.
•
Reviews workforce remuneration
policies and practices.
•
Ensures that provisions regarding
disclosure of remuneration are fulfilled.
Operations Board
Reporting to the CEO, responsible for the day-to-day trading activities of the Group and implementing the strategy agreed by the
Board. Monitors performance against financial and operational targets and manages risk. Information about the Operations Board
is available at https://corporate.theworks.co.uk/who-we-are/our-leadership.
Role of the Board and how it operates
The Board’s role is to provide overall entrepreneurial leadership,
setting the Group’s strategy, purpose, values and culture, and
supporting the Executive Directors in the delivery of that strategy.
The Board is also responsible for ensuring that appropriate policies,
procedures and controls are in place to support effective risk
management and performance against agreed financial and
operational metrics.
Certain matters, including decisions relating to the strategic
direction of the Group, changes to capital, corporate or
management structure, approving financial reports, and approval
of capital expenditure over agreed limits, are reserved to the Board
and formally documented in a Schedule of Matters Reserved to the
Board (see above) which is reviewed annually.
The Board meets at least ten times per year, and its activity at
each meeting is planned in accordance with a formal schedule
of activity approved by the Board. This ensures that it receives
appropriate information at the appropriate time, and that all
key operational, financial reporting and governance matters are
discussed during the year. In addition to standing items, agendas
incorporate sufficient flexibility to allow specific areas of focus to
be considered as and when required. The schedule includes regular
presentations from Operations Board members on specific areas
of their responsibility, which assists the Non-Executive Directors’
understanding of the day-to-day operations of different functions
of the Group.
A detailed pack is prepared and circulated in advance of each
meeting which includes updates from the CEO, CFO and other
Operations Board members tracking performance against agreed
key performance indicators. These reports also set out current
areas of focus, and highlight any specific issues requiring further
discussion or debate by the Board. The Company Secretary also
prepares a report for each Board meeting covering matters such
as forthcoming scheduled announcements and closed periods, the
operation of the Company’s Share Dealing Code and regulatory
or legislative developments which may impact the Company.
Roles and responsibilities
Chair and CEO
The Chair is responsible for leading the Board’s discussions,
ensuring its effectiveness and promoting an open forum for debate
and constructive relations between Executive and Non-Executive
Directors. The Chair holds meetings with the Non-Executive
Directors without the Executive Directors present.
There is a clear division of responsibilities between the Chair
and the CEO, with the purpose of each role clearly defined in
their respective letter of appointment and service agreement.
The CEO reports to the Board, and is responsible for all executive
management matters of the Group.
Non-Executives
The Non-Executive Directors are all independent and provide
constructive challenge to management, helping to develop
proposals on strategy, and providing advice and support based
on their experience in both executive and non-executive roles
throughout their careers.
Corporate governance report
TheWorks.co.uk plc Annual Report and Accounts 202250
Senior Independent Director
Harry Morley is the Senior Independent Director, and in that
role, acts as a sounding board for the Chair and is available
to shareholders if they have concerns which contact through
the normal channels of the CEO or Chair has failed to resolve.
He also leads the annual evaluation of the Chair’s performance.
Board Committees
In line with recognised governance practice, the Board has
established three Board Committees (Audit, Nomination and
Remuneration). Each Committee has its own terms of reference
which are approved by the Board and are reviewed annually.
Membership of the Committees is determined by the Board, on
recommendations from the Nomination Committee. Details of the
role, composition and activities of each Committee during the year
are set out in their respective reports on pages 54, 58 and 60.
Operations Board
The Executive Directors are supported in their day-to-day
management of the business by an experienced Operations Board.
Company Secretary
The Company Secretary supports the Board and each of the
three Board Committees, and is in attendance at all meetings.
The Company Secretary is available to all the Directors to advise
on company law, governance and best practice, whilst assisting
the Board in ensuring that the correct policies, processes and
information are tabled for discussion, noting or approval at the
correct point in time throughout the year.
Composition, independence and attendance
During FY22, the Board comprised five Directors (including the
Chair). Having considered circumstances which are likely to impair
a Non-Executive directors’ independence, it has been determined
that both of the Non-Executive Directors (Catherine Glickman
and Harry Morley) continue to be independent. The Chair (Carolyn
Bradley) was independent on appointment. The Company has
therefore complied with provision 11 of the Code throughout
the year, with at least half of the Board (excluding the Chair)
comprising independent Non-Executive Directors.
Individual Director attendance at scheduled Board and Committee
meetings (where they are a member) is set out in the table below:
Director
Board
meetings
held/
attended
Audit
Committees
held/
attended
Remuneration
Committees
held/
attended
Nomination
Committees
held/
attended
Dean Hoyle
1
(stepped down
from the Board on
30 September 2021) 1/3 N/A N/A 0/1
Carolyn Bradley
(appointed to
the Board on
30 September 2021) 8/8 N/A 2/2 1/1
Gavin Peck 11/11 N/A N/A N/A
Steve Alldridge
(appointed to
the Board on
14 May 2021) 11/11 N/A N/A N/A
Catherine Glickman 11/11 3/3 5/5 2/2
Harry Morley 11/11 3/3 5/5 2/2
1 Dean Hoyle was unable to attend two Board meetings due to other
commitments arising, and recused himself from the Nomination
Committee which was evaluating his successor.
All Directors are expected to attend all meetings of the Board
and any Committees of which they are members, and to devote
sufficient time to the Company’s affairs to fulfil their duties as
Directors. The Non-Executive Directors’ letters of appointment
anticipate that each Non-Executive Director will need to commit
a minimum of two days per month to the Company but clarify
that more time may be required. In addition, the Non-Executive
Directors are expected to commit appropriate preparation time
ahead of each meeting.
Where Directors are unable to attend a meeting, they are
encouraged to submit any comments on papers or matters
to be discussed to the Chair in advance to ensure that their
views are recorded and taken into account during the meeting.
Key activities during the year
The Board met formally on 11 scheduled occasions during the
year. With the relaxing of pandemic restrictions, the Board was
able to resume scheduled meetings in person and also site visits
to Rushden Lakes in May 2021 and Merry Hill in November 2021.
The Rushden Lakes visit included an update on retail and store
strategy. At the end of March 2022 and in early April 2022, the
Board held five additional meetings at short notice to address
the issues arising from the cyber-security incident that affected
the Company’s systems.
The standing agenda for each scheduled Board meeting
includes updates from the CEO and CFO on trading and financial
performance, an investor relations update and an update on
governance from the Company Secretary. In addition, the Board
has also received regular presentations from members of the
Operations Board covering updates on a range of topics including
brand proposition, supply chain challenges, e-commerce and
electric point of sales technology, property, people and IT
strategy. These Operations Board presentations ensure that the
Non-Executive Directors are informed of key operational initiatives
and challenges, and provide the opportunity for senior executives
to meet and discuss their areas of responsibility with the Board.
During the year the Board, has, as part of its annual
governance programme:
•
reviewed the Company’s delegated authority limits;
•
reviewed the Group risk register and internal controls structure;
•
reviewed and approved the FY23 budget;
•
reviewed its Schedule of Matters Reserved and the Terms
of Reference of the Board Committees;
•
received an update on Company culture and reviewed
a summary of key workforce policies and procedures;
•
reviewed various governance policies, including the Disclosure
Policy, Whistleblowing Policy, Share Dealing Code and Board
Diversity Policy;
•
reviewed and approved the half-year and full-year
financial statements;
•
reviewed the results of the Board evaluation and employee
engagement survey;
•
considered and agreed a presentation from the ESG steering
group on the proposed approach to a number of ESG matters.
TheWorks.co.uk plc Annual Report and Accounts 2022 51
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Training and development
A full, formal and tailored induction programme has been
developed for any new Directors joining the Board. The Company
Secretary ensures that the Board is briefed on forthcoming
legal and regulatory developments, as well as developments in
corporate governance best practice, and Directors are expected
to keep themselves appraised of developments relevant to the
Company’s business.
Evaluation and effectiveness
During the year, a formal internal performance evaluation
was conducted for the Board and each of its Committees.
The evaluation was conducted using questionnaires and
was facilitated by the Company Secretary. The evaluation’s key
findings were discussed at the Board’s meeting on 1 July 2022.
Overall the evaluation process found that the Board functions very
effectively, relationships are good, all Directors contribute fully and
discussions are constructive. In particular the Board’s response
to the recent cyber-security incident was felt to have been robust
and effective. Other key matters arising from the evaluation are
set out in the table below.
Key matter Actions
Purpose, values
and strategy
•
Develop an overall execution plan
encompassing all elements of the
Company’s strategy.
•
Create a dashboard to monitor and
measure progress against relevant KPIs.
Stakeholders
•
Build on recent good stakeholder
engagement with both colleagues
and shareholders.
•
Develop and support the Company’s ESG
programme, at Board and executive level,
recognising that the programme requires
more definition and data provision.
Board dialogue,
relationships
and quality of
discussion
•
Ensure executive time is not taken
up preparing reports for limited use.
Risk and internal
controls, and
internal audit
•
Taking account of the Board’s detailed
review of the internal control structure,
the Operational Board to consider the
implementation of further processes and the
necessary level of internal audit support.
The Board and
succession
•
Increase Nomination Committee focus
on succession planning at Board and
executive levels.
•
Create more opportunities for the Board to
meet rising stars and future executive leaders.
Information and support
Agendas and accompanying papers are distributed to the
Board and Committee members well in advance of each Board
or Committee meeting. Where necessary, separate papers are
prepared to support specific matters requiring Board decision
or approval (for example capital expenditure projects), and the
Non-Executives provide ongoing feedback to the CEO and CFO
on the content of papers to ensure they continue to support
effective debate and decision making by the Board.
All Directors have direct access to the Operational Board
members and other senior managers should they require additional
information on any of the items to be discussed. The Board and
the Audit Committee also receive regular and specific reports to
allow the monitoring of the adequacy of the Company’s systems
of internal control.
Minutes of all Board and Committee meetings are taken by the
Company Secretary and circulated to Directors for approval as
soon as practicable following the meetings. Specific actions arising
from meetings are recorded both in the minutes and on separate
action logs, thereby facilitating the effective communication
of actions to those responsible and allowing the Board to
monitor progress.
Appointment and election
The Board considers all Directors to be effective and committed
to their roles and to have sufficient time to perform their duties.
Having been appointed by the Board since the last AGM, Carolyn
Bradley will stand for appointment by shareholders at the 2022
AGM for the first time. In accordance with the Company’s Articles
of Association (articles), all other members of the Board will be
offering themselves for reappointment at the Company’s AGM
on 27 October 2022.
All of the Directors have service agreements or letters of
appointment and the details of their terms are set out below.
Executive Director service contracts
Name Position
Date of
service
agreement
Notice
period by
Company
(months)
Notice
period by
Director
(months)
Gavin Peck CEO 19 July 2018 12 12
Steve Alldridge CFO 14 May 2021 6 6
The Non-Executive Directors (including the Chair) do not have service
contracts, but are instead appointed by letters of appointment.
Each of the Non-Executive Directors and the Chair are appointed
for a three-year term, subject to their annual reappointment by
shareholders at the AGM.
Non-Executive Director appointments
Name
Date of
appointment
Appointment letter
commencement
date
Unexpired
term as at 27
October 2022
Carolyn Bradley
30 September
2021
30 September
2021 23 months
Catherine Glickman 19 July 2018 26 July 2022 33 months
Harry Morley 19 July 2018 26 July 2022 33 months
Corporate governance report continued
TheWorks.co.uk plc Annual Report and Accounts 202252
Conflicts of interest
The Company’s Articles set out the policy for dealing with
Directors’ conflicts of interest and are in line with the Companies
Act 2006. The Articles permit the Board to authorise conflicts and
potential conflicts, as long as the potentially conflicted Director
is not counted in the quorum and does not vote on the resolution
to authorise.
The Board operates a procedure under which Directors are
required to immediately notify the Company Secretary when a
conflict or potential conflict arises in order that Board authorisation
can be sought. If the Board determines that a conflict or potential
conflict can be authorised, it may impose additional conditions
to manage such conflicts of interest. The procedure is in place
to ensure that independent judgement is maintained at all times
and that Directors are not affected by the influence of third parties,
and that any conflicts arising from significant shareholdings are
managed appropriately.
In addition, Directors are reminded at the beginning of each
Board meeting to notify the Board of any further conflicts of
interest in accordance with Sections 175, 177 and 182 of the
Companies Act 2006.
Whistleblowing
The Company has adopted procedures by which colleagues may,
in confidence, raise concerns relating to possible improprieties
in matters of financial reporting, financial control or any other
matter. The Whistleblowing Policy applies to all colleagues
across the Group. The Board is responsible for monitoring the
Group’s whistleblowing arrangements and reviewed the policy
and arrangements in April 2022. Whilst the Board is satisfied
that the arrangements are effective, facilitating the appropriate
investigation of reported matters, it is seeking to further enhance
the Whistleblowing Policy in FY23.
Stakeholder engagement
The CEO and Operational Board members are responsible for the
day-to-day management of stakeholder relationships and to
ensuring that stakeholder issues are appropriately reported to the
Board. Further information on how we engage with stakeholders
is set out on pages 24 and 25. The Directors recognise their duty
under Section 172 of the Companies Act to consider the interests
of stakeholders, and the nature of our business means that the
interests of our colleagues, customers and suppliers are at the front
of mind in the Board’s decision-making process. The Company’s
Section 172 statement is included on page 26.
Engagement with the workforce
During the year, the Board devoted significant time to considering
colleagues’ safety and wellbeing. The Board also continue to
monitor the Company’s culture.
The Board recognises that the Company’s culture underpins its
long-term success. Accordingly, assessing and monitoring the
culture that is being fostered across the Group forms part of
the Board’s activity schedule. In addition, during the year the
Board undertook a formal review of the Company’s culture, and
in particular how culture supports the retention of hard working,
customer centric colleagues. It also reviewed a number of
workforce policies.
The Board received regular updates on colleague engagement
activity through Operational Board reports. The Board also
reviewed and discussed the results of the annual employee
engagement survey, and management’s feedback on the survey’s
key findings was sought and discussed by the Board. As part of its
review of Code compliance during the year, the Board assessed
the various methods by which the Directors engage with the wider
workforce. The Board agreed that the combination of the methods
described on page 53 ensures that the Board is appropriately
informed about, and understands, workforce views, and therefore
this approach continues to appropriately address the requirement
to engage with the workforce under provision 5 of the Code.
The Board does not currently intend to adopt one of the three
workforce engagement methods suggested in that provision,
but will continue to monitor its workforce (and wider stakeholder)
engagement mechanisms to ensure they operate effectively.
Relations with shareholders
The Board recognises the importance of explaining financial
results and key strategic and operational developments in the
business to the Company’s shareholders, and of understanding
any shareholder concerns.
Ensuring a satisfactory dialogue with shareholders and receiving
reports on the views of shareholders are matters reserved for the
Board. Day-to-day responsibility for investor relations is delegated
to the CEO and the CFO, who are supported by the Company’s
retained financial PR advisers, and its corporate brokers. As part
of its investor relations programme, the Group aims to maintain
a dialogue with its shareholders, including institutional investors,
to discuss issues relating to the performance of the Group.
Information and investor news is also made available via the
Company’s website (https://corporate.theworks.co.uk/investors).
In April 2022, the Board met with Investec, the Company’s
lead brokers, to discuss the development of a more proactive
shareholder engagement programme.
The Non-Executive Directors are available to discuss any matters
shareholders might wish to raise. Shortly after her appointment
the Chair contacted lead shareholders and offered a meeting.
The Chair and independent Non-Executive Directors also attend
meetings with investors and analysts as required. Investor relations
activity is a standing item on the Board’s agenda.
The Company’s AGM will take place at 9am on 27 October 2022
at Boldmere House, Faraday Avenue, Hams Hall Distribution Park,
Coleshill, Birmingham B46 1AL. This Annual Report and financial
statements and Notice of the AGM will be made available to
shareholders in accordance with the required notice periods.
TheWorks.co.uk plc Annual Report and Accounts 2022 53
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Audit Committee report
Chair of the Audit Committee’s letter to shareholders
Dear shareholder,
I am pleased to present the Audit Committee’s report for
the 52-week period ended 1 May 2022. The report sets out the
Committee’s work in relation to financial reporting, internal
control and audit, risk management and oversight of the
external audit process.
The Committee’s role is to assist the Board with the discharge
of its responsibilities in relation to external audit, monitoring the
Group’s arrangements for internal audit, reviewing the Group’s
annual financial statements, considering the scope of the audit
and the extent of any non-audit work undertaken by the external
auditor, advising on the appointment of the external auditor and
reviewing the effectiveness of the Group’s internal control systems.
Our main activities in the year have included a review of the
half-year and full-year financial statements and the Annual
Report, reviewing the Group’s systems of internal control and
risk management, and considering the reports of the Company’s
external auditor.
Significant accounting judgements and policies
The significant accounting judgements identified by management
and reviewed with the external auditor were discussed by the Audit
Committee at our meetings on 31 March 2022 and 8 September
2022. Details of the significant judgements and how they have
been addressed are set out below.
Risk management and internal control
The Committee continued to review the effectiveness of the
Group’s internal control systems and risk management processes,
taking into account developments during the year which are
described below. Following the review the Committee concluded
such systems and processes are effective. They identified some
areas of improvement which management are addressing, the
most significant of which are described below. The committee also
concluded that, with the support of specialist independent advice
as required, the establishment of a permanent internal audit
function is not currently required. This will continue to be reviewed
on an ongoing basis as the business evolves.
External auditor
The Committee has reviewed the effectiveness of the FY21
external audit process, and our external auditor’s (KPMG LLP)
independence, and following that review the Committee has
recommended that KPMG LLP be reappointed as the Company’s
auditor at the forthcoming AGM.
We have monitored the level of non-audit services provided
by KPMG (described on page 57), and confirm that all non-audit
services provided were in line with our policy.
Harry Morley
Chair of the Audit Committee
23 September 2022
“ The Committee supports the
Board in discharging its duties
in relation to various matters
including financial reporting
and risk management.”
Harry Morley
Chair of the Audit Committee
Other member:
Catherine Glickman (member since September 2018)
TheWorks.co.uk plc Annual Report and Accounts 202254
Composition of committee
The members of the Committee are Harry Morley and
Catherine Glickman.
Harry Morley is a qualified chartered accountant, has an
executive background in finance roles and is an experienced
Audit Committee Chair. The Board is therefore satisfied that Harry
has recent and relevant financial experience as recommended
under provision 24 of the Code. The Board is also satisfied that
the Committee as a whole has competence relevant to the sector
in which the Company operates, with both Committee members
having experience as directors in the retail and leisure sectors.
Further biographical information about the Committee members is
included on pages 48 and 49.
Role and responsibilities
The Audit Committee’s role and responsibilities are summarised on
page 50 and in its terms of reference which are available on the
Company’s website at https://corporate.theworks.co.uk/who-we-
are/corporate-governance.
Meetings and attendees
The Committee met on four occasions during the year, and has
met twice since the year end. All meetings were attended by all
members of the Committee as shown in the table on page 51.
The external auditor has the right to attend meetings, and other
Directors and members of the management team may attend
by invitation. Outside of the formal meeting programme, the
Audit Committee Chair maintains a dialogue with key individuals
involved in the Company’s governance, including the Chair, the
CEO, the CFO, and the external auditor. At least twice per year, the
Committee also meets the external auditor without members of the
management team present.
Significant issues
and judgements How the issues were addressed
Going concern
The Committee considered the appropriateness of applying the Going Concern convention. The risk of weaker
consumer demand was considered to be the factor requiring the greatest degree of judgement relating to the
going concern assessment. The Committee concluded that the potential adverse impact on trading from a further
reduction in demand is expected to be less than the impact of the full national lockdowns which were experienced
during periods of the COVID-19 pandemic.
Valuation of inventory
The committee reviewed the results of a large sample of 4-wall store stock counts performed at year end and
considered the judgement surrounding the estimation of error rates across the stock records. The Committee also
considered the reasonableness of the provisions for stock obsolescence.
Carrying value of Parent
Company investments
A degree of judgement was required to assess the carrying value of parent company investments in its subsidiary
companies, particularly given the currently large disparity between the properly estimated value in use, and the
Group’s market capitalisation.
Risk management and internal control
The Board has overall responsibility for setting the Group’s risk
appetite and ensuring that there is an effective risk management
framework to maintain levels of risk within the risk appetite.
The Board has delegated responsibility for review of the risk
management methodology and effectiveness of internal control
to the Audit Committee.
During the year the Audit Committee and the Board have reviewed
the Group’s risk register, and challenged management on the
classification of risks and the mitigations in place. In the second half
of FY22, a full risk register analysis was undertaken by the Head of
Finance which was presented to the Committee in January 2022.
This enabled the Committee to reassess the principal risks facing
the Group, which informed its year-end review of principal risks and
uncertainties prior to making its recommendation to the Board.
Further details of the Group’s risk management approach, structure
and principal risks are set out on pages 39 to 44.
The Group’s system of internal control comprises entity-wide high-
level controls, controls over business processes and store-level
controls. Policies and procedures and defined levels of delegated
authority have been approved and communicated across the
Group, and include an Internal Control Framework, corporate risk
register, business continuity plan and IT system policies. These
are supplemented by other policies and procedures which are
communicated to colleagues through the employee handbook.
Activity during the year
During the year the Committee has:
•
considered the impact on the business of the
COVID-19 pandemic;
•
considered the findings of a detailed risk review exercise
undertaken by the Head of Finance and, in light of this, reviewed
the Group’s principal risks and the appropriateness of the
approach to managing them;
•
considered the treatment of asset impairments in light of the
COVID-19 pandemic;
•
considered the requirement for an internal audit function.
•
reviewed the scenario analysis in support of the going concern
assessment and long-term viability statement;
•
monitored the application of the Group’s policy on the provision
of non-audit services by the external auditor.;
•
reviewed the effectiveness of the Group’s internal control and risk
management systems;
•
reviewed the half-year financial statements, and this Annual
Report and financial statements, and recommended their
approval by the Board;
•
reviewed the effectiveness of the external auditor; and
•
reviewed the Committee’s terms of reference to ensure they
remain in line with the Code and associated guidance.
Significant issues considered in relation to the
financial statements
Significant issues and accounting judgements are identified by
the finance team and through the external audit process and are
reviewed by the Audit Committee. The significant issues considered
by the Committee in respect of the year ended 1 May 2022 are set
out in the table below.
TheWorks.co.uk plc Annual Report and Accounts 2022 55
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Risk management and internal control continued
Management has identified the key operational and financial
processes which exist and implemented internal controls over
these processes in addition to the higher level review and
authorisation-based controls. These policies are designed to
ensure the accuracy and reliability of financial reporting and
govern the preparation of the financial statements. The Board is
ultimately responsible for the Group’s system of internal controls
and risk management and discharges its duties in this area by:
•
holding regular Board meetings to consider the matters reserved
for its consideration;
•
receiving regular management reports which provide an
assessment of key risks and controls;
•
scheduling periodic Board reviews of strategy including reviews
of the material risks and uncertainties facing the business;
•
ensuring there is an organisational structure with defined
responsibilities and levels of authority;
•
ensuring there are documented policies and procedures in
place; and
•
regularly reviewing reports containing detailed information
regarding financial performance, forecasts, actual and forecast
bank covenant compliance and financial and non-financial KPIs.
In reviewing the effectiveness of the system of internal controls,
the Audit Committee:
•
reviews the risk register compiled and maintained by senior
managers within the Group and questions and challenges
where necessary; and
•
regularly reviews the system of financial and accounting controls.
The Audit Committee, on behalf of the Board, has reviewed the
effectiveness of the internal control systems and risk management
processes in place, taking account of any material developments
since the year end. We would highlight the following as a result
of this ongoing process of review:
•
It was noted in last year’s Audit Committee report that the
process for counting stock in stores had been interrupted during
FY21 due to the periods of enforced store closures resulting
from the pandemic. In January 2022, the Company employed
a Profit Protection Manager, part of whose role encompasses
the monitoring and review of processes to improve operational
controls and reduce losses. The Audit Committee approved a
proposal by the Profit Protection Manager to engage a third
party (Retail and Asset Solutions) to advise on the process and
count stock in a significant sample of stores prior to the year
end, to increase assurance as to the integrity and robustness of
the results. Accordingly, a programme was undertaken to count
stock in 125 stores. During FY23 this programme will be expanded
to cover the Group’s entire store estate and will be undertaken
on a rolling basis, with a risk based approach being used to
target additional follow up counts.
•
Following a cyber-security incident in March 2022, the Committee
approved the engagement of specialist independent advisers to
review the Group’s existing IT security plans, arrangements and
controls, and make recommendations as appropriate. This review
generally endorsed the Group’s existing plans, and made useful
additional recommendations, as well as providing advice as to
the method of implementation. As a result, the Committee has
gained valuable assurance as to the adequacy of the Group’s
enhanced protections and controls following the incident.
•
To support the work of the Profit Protection Manager, and to
increase the Group’s capacity generally for carrying out process
reviews and implementing improvements as well as reviewing
the effectiveness of internal controls, the Group has recently
appointed a suitably qualified and experienced individual to
establish an in-house process/control improvement function
within the finance team.
Internal audit
The review of the Company’s risk register referred to above
enabled the Committee to assess the need for external support
in carrying out reviews of priority areas. As highlighted above, the
Committee approved the engagement of specialist independent
advisers to review and make recommendations in relation to
certain IT matters, and the Group has also recently created a
dedicated function within its finance team to review systems and
processes, oversee and/or implement improvements and review
internal controls.
The Committee is satisfied that the continued targeted use of
specialist independent advisers to review priority areas of focus
has effectively supported the existing internal resource during
FY22. Noting also the additional internal resources the Group
has engaged to support process/control improvements, the
Committee has concluded that the arrangements for reviewing
and monitoring internal controls are adequate and that there
is no current requirement for the establishment of a permanent
dedicated internal audit function.
Audit Committee report continued
TheWorks.co.uk plc Annual Report and Accounts 202256
External auditor
The Audit Committee is responsible for overseeing the Group’s
relationship with its external auditor, KPMG LLP. This includes
the ongoing assessment of the auditor’s independence and
the effectiveness of the external audit process, the results of
which inform the Committee’s recommendation to the Board as
to the auditor’s appointment (subject to shareholder approval)
or otherwise.
Appointment and tenure
KPMG was appointed as the Company’s external auditor in 2018.
The current lead audit partner, Tony Sykes, was appointed ahead
of the FY19 audit process and will retire from the firm prior to the
FY23 audit. To ensure an orderly succession, the Committee has
met with Gordon Docherty, the audit partner who will (subject to
shareholder approval of KPMG’s reappointment) take over from
Tony Sykes, following the conclusion of the FY22 audit.
KPMG generally requires the rotation of the lead audit partner
every five years for a listed client. This requirement will not now
manifest itself until after the FY27 audit. In addition to KPMG’s
internal guidelines and, in accordance with the Code and EU
legislation, the Audit Committee intends to put the external audit
out to tender at least every ten years.
Non-audit services
The engagement of the external audit firm to provide non-audit
services to the Group can impact on the independence assessment.
The Company has therefore adopted a policy which requires Audit
Committee approval for any permitted non-audit services, except
for permitted non-audit services with a fee of less than £5k on
an individual basis or £20k on an aggregated basis for which the
Audit Committee has pre-approved the use of the external auditor,
subject to approval of the service by the CFO.
When reviewing requests for non-audit services the Audit
Committee will assess:
•
whether the provision of such services impairs the auditor’s
independence or objectivity and any safeguards in place to
eliminate or reduce such threats;
•
the nature of the non-audit services;
•
whether the skills and experience make the auditor the most
suitable supplier of the non-audit service;
•
the fee to be incurred for non-audit services, both for individual
non-audit services and in aggregate, relative to the Group
audit fee; and
•
the criteria which govern the compensation of the individuals
performing the audit.
The external auditor may not be engaged to provide non-audit
services which have been identified as ’prohibited’ in accordance
with legislative and regulatory requirements.
During the year, the only non-audit services which KPMG has been
engaged to carry out relate to the issuance of turnover certificates
for a small number of stores where the terms of the lease require
them to be independently verified. The fees paid to KPMG LLP in
respect of these services totalled £ 1k, representing 0.7% of the
total audit fee. Further detail is included in Note 7 to the financial
statements on page 104.
External audit effectiveness
During the year, the Audit Committee reviewed the external
auditor’s effectiveness in carrying out the FY21 year-end audit and
concluded that the audit process had been carried out effectively.
The Committee will formally review the effectiveness of the FY22
audit process during FY23.
Performance evaluation
The evaluation of the performance of the Board and its
Committees during the year was conducted using questionnaires
and was facilitated by the Company Secretary. The questionnaires
included a section on the work of the Committee. The key findings
of the evaluation are set out on page 52.
Harry Morley
Chair of the Audit Committee
23 September 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 57
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Dear shareholder,
Over the past 12 months, there have been a number of changes
at both Board and senior executive levels within The Works.
I was delighted to be appointed Chair of the Board and the
Nomination Committee in September 2021. I would like to thank
Harry Morley, who was the Chair of the Nomination Committee
from the Company’s IPO until this year, for his leadership of the
Committee during this time. Harry took on the role as Chair of
the Committee at IPO as our then Board Chair (Dean Hoyle) was
not deemed independent under the Code. As I was deemed to
be independent on my appointment as Board Chair, the Board
agreed it was appropriate for me to also chair the Nomination
Committee in line with typical practice for listed Companies of our
size. I am grateful that Harry, along with Catherine Glickman, the
Committee’s other member, are continuing as Committee members
and thank them both for their support.
This report summarises the work of the Nomination Committee
during the year. Whilst, in conjunction with our CEO, Gavin Peck,
we have established a strong Board and senior leadership team
to drive the Group’s growth and development in the coming years,
there is still work to be done, particularly in relation to diversity and
this will be a focus for the Committee in the next 12 months.
Carolyn Bradley
Chair of the Nomination Committee
23 September 2022
“ Whilst we have established
a strong leadership team
there is still work to be done,
particularly in relation to
diversity, and this will be a
focus in the next 12 months.”
Nomination Committee report
Chair of the Nomination Committee’s letter to shareholders
Carolyn Bradley
Chair since 30 September 2021
Other members:
Catherine Glickman (member since September 2018)
Harry Morley (Chair until 30 September 2021 and member
since September 2018)
TheWorks.co.uk plc Annual Report and Accounts 202258
Composition of the Committee
The members of the Committee are Carolyn Bradley, Catherine
Glickman and Harry Morley.
The biographies of the Committee members are included
on page 48.
Role and responsibilities
The role and responsibilities of the Committee are summarised
on pages 50 to 51 and in its terms of reference which are available
on the Company’s website at https://corporate.theworks.co.uk/
who-we-are/corporate-governance.
Meetings and attendees
The Committee meets at least once per year and otherwise as
required in order to discharge its duties. Only members of the
Committee have the right to attend meetings, but the CEO and
People Director are typically invited to attend at least part of each
meeting, particularly when executive succession planning is being
discussed and other workforce related matters. Other Directors,
executives or advisers may be invited to attend all or part of any
meeting as appropriate.
The Committee met twice during the year. Individual attendance
at the meetings is set out in the table on page 51. The meetings
covered a number of matters including reviewing the composition
of the Board and Board succession planning, but primarily focused
on the recruitment of a new Board Chair. The Committee also
reviewed the Board Diversity Policy.
Appointment of Chair
During the summer of 2021, the Chair of the Nomination Committee
(at that time), Harry Morley, led the process to recruit a new Chair
of the Board to succeed Dean Hoyle, who had announced his
intention to step down having been Chair since 2014. Mr Hoyle
recused himself from the Nomination Committee’s activities during
this period. The search was undertaken by Odgers Berndtson
(Odgers), which has have no other relationship with the Company.
The aim of the process was to bring in a new independent
Non-Executive Director with strong experience in the retail sector,
particularly in brand and customer proposition, as well as solid
listed company board experience.
As a result of the search process, Odgers complied a long-list of
candidates which was considered by the Committee. Following
consideration and discussion the Committee agreed on a short-list
of candidates who subsequently met with members of the Committee
and the CEO and CFO. Following these meetings and further
discussions, the Committee recommended my appointment to the
Board, which was approved by the Board in July 2021.
Succession planning
Board and senior management succession planning remains on
the Committee’s rolling agenda and will continue to be considered
on a regular basis.
During the year, the Committee monitored a number of changes
in the Operating Board. Now that the team is established, during
the coming year it will begin to focus on talent development.
Diversity
The Board recognises the importance of diversity, including gender
diversity. While it believes that all appointments should be made
on merit, the Board recognises the need to ensure an appropriate
balance of skills and experience within the Board and across
the Company.
The Board supports the measures the Financial Conduct Authority
(FCA) has introduced to enhance transparency in relation to
diversity. As at 1 May 2022 the proportion of women on the Board
was 40% (in line with the FCA’s target) and the proportion of men
60%. Carolyn Bradley’s appointment as Chair already aligns
the Company with the FCA’s target of at least one senior board
position being held by a woman.
Women made up 33% of the Group’s senior management team
as at 1 May 2022.
The Committee is responsible for monitoring compliance with the
objectives of the Company’s Diversity Policy. The Policy recognises
the benefits of greater diversity, including gender diversity and
sets out the Board’s commitment to ensuring that the Company’s
Directors bring a wide range of skills, knowledge, experience,
backgrounds and perspectives to the Group. Its key objective
is to ensure that the recruitment processes that the Nomination
Committee oversees considers an appropriately diverse pool
of candidates that will enhance the Board’s balance of skills
and backgrounds.
As part of its commitment to diversity, the Company has signed up
to the British Retail Council Diversity and Inclusion Charter. During
the year the Board also agreed to further increase the focus on
diversity across the business. In the coming year, the Committee
will review the ethnic diversity of the Board and the senior
management team and develop a programme of initiatives to
promote greater ethnic diversity at senior levels across the Group,
including the appointment of at least one Director from an ethnic
minority background.
Other matters considered
Other than for the appointment of Carolyn Bradley as Chair
(described above), there has been no formal Board recruitment
process during the year.
The Code also places other responsibilities and objectives on the
Committee, including an annual review of the structure, size and
composition of the Board and an annual review of the Board’s
Diversity Policy. Both of these matters were addressed at the
Committee’s meeting in April 2022.
Performance evaluation
The evaluation of the Committee’s performance in 2022 was
conducted by the Board using questionnaires and was facilitated
by the Company Secretary. The questionnaires included a section
on the work of the Committee. The key findings of the evaluation
are set out on page 52.
Carolyn Bradley
Chair of the Nomination Committee
23 September 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 59
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Dear shareholder,
As Chair of the Remuneration Committee, I present our Directors’
remuneration report for FY22.
This year’s report consists of this letter, our new Directors’
Remuneration Policy for which shareholder approval will be sought
at the 2022 AGM (the Policy), and then the Annual report on
remuneration which sets out payments made to the Directors and
demonstrates how Company performance and remuneration were
aligned for FY22. At the 2022 AGM, shareholders will be asked to
vote by separate resolution on the New Policy and, on an advisory
basis, on the remainder of the Directors’ remuneration report.
Renewal of the Company’s Directors’
Remuneration Policy
Our current Directors’ Remuneration Policy (the Current Policy) was
approved at the 2019 AGM and in line with applicable legislation we
are required to submit it for shareholder approval at the 2022 AGM.
The Committee reviewed the Current Policy during the year. We
think it supports our ‘better, not just bigger’ strategy and is aligned
both with best practice and governance requirements. We are
therefore proposing to retain it with a small number of refinements.
These do not increase remuneration opportunities and are
summarised on pages 62-63, together with illustrations of how the
Policy would be implemented if it is approved by shareholders. In
determining the Policy, the Committee followed a robust process,
getting input from independent advisers. We consulted with
major shareholders before finalising the Policy: we thank those
who responded and I am pleased to report that the feedback
we received supported our proposals. The Committee also had
regard to the provisions of paragraphs 40 and 41 of the Code, as
explained on page 72.
FY22 remuneration in the context of our business
performance
As detailed in the Strategic report, the Group delivered a good
trading performance in FY22, which was well ahead of pre-COVID
levels and ended the year in a strong financial position. In particular:
•
two-year like-for-like sales increased 10.5%, and total two-year
gross sales grew 12.7%;
•
improved proposition helped offset external headwinds, with
FY22 EBITDA of £16.6m;
•
delivered record Christmas trading with net cash of £16.3 million,
an increase of £15.5 million during FY22; and
•
dividend reinstated, with a final dividend of 2.4 pence per share
to be proposed to shareholders for approval at the 2022 AGM
The FY22 bonus opportunity for Gavin Peck and Steve Alldridge
was up to a maximum of 100% of salary, with 90% of the award
based on stretching EBITDA targets and the remaining 10% based
on performance against key strategic objectives. Details of the
measures and targets are set out on page 65. EBITDA of £16.6m
was achieved resulting in bonuses being earned of 68.5% of salary
in respect of the EBITDA element. Following a robust assessment of
the achievements against the strategic objectives, the Committee
agreed a bonus outcome for Gavin Peck and Steve Alldridge of 9.5%
of salary and 9% of salary respectively in respect of the strategic
element. Gavin Peck and Steve Alldridge therefore earned a bonus
equal to 78% of salary and 77.5% of salary respectively.
“ We are pleased that,
given the challenges
of the last couple of
years, we continue to be
one of the 25 Best Big
Companies to work for.”
Directors’ remuneration report
Chair of the Remuneration Committee’s letter to shareholders
Catherine Glickman
Chair of the Remuneration Committee
Other members:
Carolyn Bradley (member since 2021)
Harry Morley (member since 2018)
TheWorks.co.uk plc Annual Report and Accounts 202260
Gavin Peck was granted a Long Term Incentive Plan (LTIP) award
in September 2019 which vested by reference to EPS performance
over the three financial years ending with FY22. Details of the
targets are set out on page 75. The EPS targets were achieved in
part resulting in the award vesting at 38.4% of maximum. The award
remains subject to a further two-year holding period before it can
be exercised.
In line with good practice, these incentive outcomes were reviewed
in the context of overall business performance over FY22 (as
regards the bonuses) and the three-year performance period (in
relation to Gavin Peck’s LTIP award). The Committee considered
that the level of vesting was appropriate given overall performance
and did not exercise discretion to adjust the outturns.
Remuneration across the business
The Committee continues to make decisions on remuneration for
the Executive Directors in the context of decisions for colleagues
across the Group, both for FY22 and for FY23 and the operation of
the New Policy.
In March 2022 we made an award of one week’s pay as a one-
off bonus to all colleagues (except those at Director grade and
2022 new starters) to recognise all their hard work throughout the
last two years and to say thank you. This has been extremely well
received. In addition, the Committee has approved further bonus
payments to be made to senior leaders and store managers in
October 2022.
For FY23, salaries for colleagues in retail have increased in line
with the National Living Wage, with further investment in the
management grades to maintain appropriate differentials. This
resulted in an average increase of 6.3% for colleagues in retail.
Salaries for Distribution Centre and Support Centre roles increased
in line with the National Living Wage where relevant with further
investment in certain grades to maintain appropriate differentials,
and outside of that, an average increase of 3% was applied.
Recognising the cost-of-living pressures, in FY23 we also launched
a new engagement and benefits platform (MyWorks by Reward
Gateway) across the business which offers colleagues discounts
and money saving offers with a number of businesses and services
which has been well received.
We consider the Operational Directors to be an effective high-
performing team. To retain and motivate them, we continued
to make awards of restricted shares in FY22, a policy that has
been very well received. For FY23 we intend to introduce a hybrid
scheme, with a smaller award of restricted shares and opportunity
to earn more through a three-year performance related element.
For area and retail management, we have introduced a new bonus
scheme which will reward achievement of objectives aligned with
our strategy.
Approach to remuneration for FY23
Our approach to Directors’ remuneration in respect of FY23 is
summarised in the table on page 62, along with a summary of the
proposed Policy refinements which are as follows:
•
Codifying that pension provision for the Executive Directors
is aligned with the wider workforce, which aligns with
current practice.
•
Codifying that for financial performance metrics under the
annual bonus no more than 50% will be earned for target
performance, which aligns with current practice.
•
To provide future flexibility, up to 25% of an LTIP award may be
based on non-financial performance measures, although there
is no current intention to introduce such measures.
•
The shareholding guideline has been aligned at 200% of salary
for all Executive Directors.
•
A formal post-employment shareholding guideline has been
introduced such that Executive Directors will be required to retain
for one year following cessation of employment relevant shares
that have a value equal to the in-service shareholding guideline
(200% of salary) or if less all of those shares.
Other minor amendments have been made to the Current Policy to
aid the operation of the Policy.
The fees for our Non-Executive Directors, Harry Morley and
Catherine Glickman, have applied since Admission. The Non-
Executive Directors have been awarded a 3% increase in their
fees with effect from 1 September 2022. Our Non-Executive Chair,
Carolyn Bradley, was appointed on 30 September 2022 on an
annual fee of £100,000; no fee increase has been awarded in
respect of FY23.
Stakeholder engagement
Given the external challenges we have faced over the last years,
I would like to thank the Executive Directors, the Operational
Directors and all our colleagues at The Works for their continued
commitment, flexibility and sheer hard work over the last year.
We know that our colleagues are a key part of our customer
experience. The other Board members and I have had the
opportunity this year to visit stores and teams around the country
and meet our colleagues. Both those with long service or new to
The Works have demonstrated their caring and can-do attitude,
and their enthusiasm for our products. We continue to be a
company in which colleagues can develop their careers with us,
with the majority of colleagues being internally developed. We are
pleased that, given the challenges of the last couple of years, we
continue to be one of the 25 Best Big Companies to work for.
As the Board, we continue to receive regular updates on colleague
wellbeing, morale, retention and health and safety. We also review
the annual Best Companies engagement survey results, in which
colleagues provide feedback on leadership, personal growth, and
giving something back, as well as pay and benefits.
On behalf of the Board, I would like to thank shareholders for their
engagement with us during the year. I am happy to receive any
questions or comments from shareholders at any time, and hope
that you will be happy to support the new Remuneration Policy and
the Annual report on remuneration.
Catherine Glickman
Chair of the Remuneration Committee
23 September 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 61
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Our Policy – summary and FY23 intended approach
The following table summarises the key aspects of our Current Policy, changes proposed in the Policy and, subject to shareholders’
approval, information on how we intend to implement the Policy in FY23.
Current Policy Policy and intended implementation in FY23
Base salary Ordinarily reviewed annually. In line with typical
practice, increases are normally within the range
of increases awarded to other colleagues.
Flexibility is retained to award higher increases in
appropriate circumstances.
No changes to the Current Policy.
For FY23, the Executive Directors’ salaries have
been increased by 3% to:
•
Gavin Peck: £309,000.
•
Steve Alldridge: £216,300.
Retirement benefits Defined contribution pension (or cash equivalent).
Gavin Peck: The Current Policy permits a
contribution of up to 10% of salary plus the
amount of any employer social security saving if
he sacrifices any other element of remuneration
into pension. However, and as previously reported
on his appointment as CEO Gavin’s pension was
aligned with that of the wider workforce at 3% of
base salary.
Steve Alldridge: The Current Policy provides for
his pension to be aligned with that applicable to
other colleagues and has been at the level of 3%
of base salary since appointment.
Having regard to the reduction in Gavin Peck’s
pension provision on his appointment as CEO, the
Policy refers to alignment with the wider workforce
for all Executive Directors.
The Policy retains the ability for Executive Directors
to sacrifice other elements of remuneration into
pension and benefit from any associated employer
social security saving.
Annual bonus Maximum opportunity of 100% of salary.
Full bonus ordinarily paid in cash but with flexibility
to defer into shares for up to two years.
The Committee has discretion to amend the
pay-out should any formulaic output not
reflect the Committee’s assessment of overall
business performance.
At least 50% of the bonus is based on
financial measures.
No change to quantum or to the manner
of payment or to the flexibility as regards
performance measures.
In line with best practice, the Policy confirms that
for financial targets no more than 50% of the
maximum opportunity may be earned for target
performance, which reflects how the annual bonus
has been applied in practice.
In addition to on-target and maximum
performance targets, a threshold performance
target will be introduced against which no more
than 20% of the maximum opportunity may
be earned.
For FY23, the maximum bonus opportunity will
be 100% of salary for each Executive Director.
Consistent with the bonus arrangement for FY22
performance will be based on EBITDA as regards
90% of the award and strategic objectives
with clear measurable targets as regards 10%
of the award. As targets (both financial and
strategic) under the annual bonus are considered
commercially sensitive, these will be disclosed
retrospectively in the FY23 Annual Report.
Directors’ remuneration report continued
TheWorks.co.uk plc Annual Report and Accounts 202262
Current Policy Policy and intended implementation in FY23
LTIP Maximum award of 100% of salary, or 200%
of salary in exceptional circumstances, with
up to 25% vesting for threshold performance.
Performance conditions must be based on
financial performance measures. Awards are
subject to a three-year vesting period followed
by a two-year holding period. The Committee
has discretion to amend the pay-out should any
formulaic output not reflect the Committee’s
assessment of overall business performance.
No change to the quantum or timeline.
To give flexibility for the future, in relation to
performance conditions, a minor change permits
up to 25% of an award to be based on non-financial
performance measures, although there is no
current intention to introduce such measures.
For FY23, it is intended that the maximum LTIP
opportunity will be 100% of salary for each
Executive Director, in order to appropriately
retain, motivate and reward them for delivering
resilient future performance. Full details of the
performance metrics and targets will be included
in the regulatory announcement at the time the
awards are granted. It is currently intended that
the awards will be subject to EPS performance
and share price performance metrics (equally
weighted).
In-service shareholding
guidelines
Executive Directors are required to retain half of
all shares acquired under the LTIP (after sales to
cover tax and any exercise price) until such a time
as their holding as a value equal to 200% of salary
in the case of the CEO and 100% of salary in the
case of any other Executive Director.
The required holding has been aligned at 200% of
salary for all Executive Directors.
Post-employment
shareholding guidelines
Ordinarily any awards under the LTIP which are
held by an Executive Director will continue and
only be released on the ordinary timescale so that
the interests of a departing Executive Director
who is a ‘good leaver’ continue to be aligned with
those of shareholders.
A formal guideline has been introduced, which
will apply to shares acquired pursuant to LTIP and
deferred bonus awards granted in respect of FY23
and future years (including the FY23 LTIP awards
even if they are granted before the 2022 AGM).
Executive Directors will be required to retain for
one year following cessation of employment such
of the relevant shares as have a value equal to the
in-service shareholding guideline (200% of salary)
or if less all of those shares.
The current approach of ordinarily releasing a
‘good leaver’s’ LTIP awards only on the ordinary
timescale will be maintained.
Non-Executive Directors’
remuneration
Fees are set taking into account the
responsibilities of the role and expected time
commitment.
Benefits may be provided where appropriate
which are relevant to the requirements of the
role. Non-Executive Directors are currently paid a
single all-inclusive fee. The Current Policy includes
flexibility to introduce a structure of a basic Non-
Executive Director fee with additional fees paid for
chairing of Committees and assuming the role of
Senior Independent Director.
No changes to the Current Policy.
It is intended to review the Non-Executive Directors’
fees during FY23.
TheWorks.co.uk plc Annual Report and Accounts 2022 63
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Directors’ remuneration policy
This part of the Directors’ remuneration report sets out The Works’ Directors’ Remuneration Policy (the Policy), which, subject to
shareholder approval at the 2022 AGM, will take binding effect from the close of that meeting. The differences between the Policy and the
Directors’ Remuneration Policy approved at the 2019 AGM are described on pages 62 and 63.
The Policy is determined by the Company’s Remuneration Committee (the Committee).
Policy for Executive Directors
Component Purpose and link to strategy Operation Maximum opportunity Performance measures
Base
salary
Core element of fixed
remuneration reflecting
individual’s role
and experience.
The Committee ordinarily reviews base
salaries annually taking into account
a number of factors including (but not
limited to) the value of the individual,
the scope of their role, their skills and
experience and performance.
The Committee also takes
into consideration:
•
pay and conditions of the
workforce generally; and
•
group profitability and prevailing
market conditions.
Whilst there is no maximum
salary, increases will
normally be within the
range of salary increases
awarded (in percentage
of salary terms) to
other employees of
the Group. However,
higher increases may be
awarded in appropriate
circumstances, such as:
•
on promotion or
in the event of an
increase in scope of
the role or individual’s
responsibilities;
•
where an individual has
been appointed to the
Board at a lower than
typical market salary
to allow for growth in
the role, in which case
larger increases may
be awarded to move
salary positioning to
a typical market level
as the individual gains
experience;
•
change in size and/
or complexity of the
Group; and
•
significant market
movement.
Increases may be
implemented over
such time period as
the Committee deems
appropriate.
While no formal
performance conditions
apply, an individual’s
performance in role
is taken into account
in determining any
salary increase.
Benefits Fixed remuneration
provided on a market
competitive basis.
Benefits include the use of a fully
expensed car (or car allowance),
medical cover for the Executive
Director and his/her spouse and
dependent children, critical illness
cover and life assurance scheme.
Other benefits may be provided based
on individual circumstances, which
may include relocation costs, travel
and accommodation expenses.
Reimbursed expenses may include
a gross-up to reflect any tax or
social security due in respect
of the reimbursement.
Whilst the Committee
has not set an absolute
maximum on the level
of benefits Executive
Directors may receive, the
value is set at a level which
the Committee considers
to be appropriately
positioned taking into
account the nature and
location of the role and
individual circumstances.
Not applicable.
Remuneration policy
TheWorks.co.uk plc Annual Report and Accounts 202264
Component Purpose and link to strategy Operation Maximum opportunity Performance measures
Retirement
benefits
Provide a competitive
means of saving to
deliver appropriate
income in retirement.
The Company operates a defined
contribution scheme.
In appropriate circumstances,
an Executive Director may receive
a salary supplement in lieu of
some or all of the contributions
that would otherwise be made
to a pension scheme.
Executive Directors may be
permitted to sacrifice other elements
of remuneration and receive an
equivalent contribution to a pension
scheme. Should any Executive Director
elect to do so, any employer social
security saving for the Group may
also be contributed to a pension
arrangement on behalf of the
Executive Director.
The maximum contribution
will be aligned with the
contribution available to
other employees, plus the
amount of any employer
social security saving
if an Executive Director
sacrifices any other
element of remuneration
as referred to in the
‘Operation’ column.
Not applicable.
Annual
bonus
The executive bonus
scheme rewards
Executive Directors
for performance in the
relevant year against
targets and objectives
linked to the delivery of
the Company’s strategy.
Targets and objectives are reviewed
annually and any pay-out is
determined by the Committee
after the year end.
The Committee has discretion
to amend the pay-out should any
formulaic output not reflect the
Committee’s assessment of overall
business performance.
The full amount of any bonus earned
will ordinarily be paid in cash, although
the Committee has discretion to defer
some or all of the bonus earned into
shares, for up to two years.
Deferred bonus awards may take
the form of conditional shares or nil
(or nominal) cost options.
Deferred bonus awards may
incorporate the right to receive
additional shares calculated by
reference to the value of dividends
which would have been paid on the
deferred bonus award shares up to
the time of vesting; this amount may
be calculated assuming that the
dividends have been reinvested in
the Company’s shares on such basis
as the Committee determines.
Recovery provisions apply,
as referred to below.
The maximum annual
bonus opportunity is
100% of base salary.
Targets (which may be
based on financial or
strategic measures) and
individual objectives are
determined to reflect
the Company’s strategy.
At least 50% of the
bonus opportunity is
based on financial
measures which may
include but are not
limited to EBITDA or
other measure of profit.
The balance of the
bonus opportunity will
be based on financial
measures and/or the
delivery of strategic/
individual measures.
Subject to the
Committee’s discretion
to amend the formulaic
output, for financial
measures up to 20%
of the maximum will be
earned for threshold
performance and up
to 50% of the maximum
will be earned for
on-target performance.
For strategic/individual
measures, the bonus will
be earned between 0%
and 100% based on the
Committee’s assessment
of the extent to
which the measure
has been achieved.
TheWorks.co.uk plc Annual Report and Accounts 2022 65
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Component Purpose and link to strategy Operation Maximum opportunity Performance measures
Long Term
Incentive
Plan
(LTIP)
The LTIP provides a
clear link between the
remuneration of the
Executive Directors and
the creation of value
for shareholders by
rewarding the Executive
Directors for the
achievement of longer
term objectives aligned
with shareholders’
interests.
Under the LTIP, the Committee may
grant awards as conditional shares
or as nil (or nominal) cost options.
Awards will usually vest following
the assessment of the applicable
performance conditions, typically
following the end of a three-year
performance period, but will not be
released (so that the participant is
entitled to acquire shares) until the
end of a holding period of two years
beginning on the vesting date.
Alternatively, awards may be granted
on the basis that the participant is
entitled to acquire shares following
the assessment of the applicable
performance conditions but that
(other than as regards sales to cover
tax liabilities and any exercise price)
the award is not released (so that
the participant is able to dispose
of those shares) until the end of the
holding period.
The Committee has discretion
to amend the pay-out should any
formulaic output not reflect the
Committee’s assessment of overall
business performance.
LTIP awards may incorporate the
right to receive additional shares
calculated by reference to the value
of dividends which would have been
paid on the vested shares subject to
the award up to the time of release;
this amount may be calculated
assuming that the dividends have
been reinvested in the Company’s
shares on such basis as the
Committee determines.
The Committee may at its discretion
structure awards as qualifying LTIP
awards, consisting of a tax qualifying
Company Share Option Plan (CSOP)
option with a per share exercise price
equal to the market value of a share
at the date of grant and an ordinary
nil (or nominal) cost LTIP award, with
the ordinary award scaled back at
exercise to take account of any gain
made on exercise of the CSOP option.
Recovery provisions apply,
as referred to below.
The maximum award
level is 100% of base
salary, or 200% of base
salary in exceptional
circumstances.
The market value of
shares subject to an LTIP
award will be determined
on such basis as the
Committee considers
appropriate, which will
be applied consistently
where possible.
If a qualifying LTIP is
granted, the value of
shares subject to the
CSOP option will not count
towards the limit referred
to above, reflecting the
provisions for the scale
back of the ordinary
LTIP award.
For at least 75% of
an LTIP award, the
performance measures
will be based on
financial measures
(which may include,
but are not limited
to, earnings per
share, relative total
shareholder return,
and share price). Any
balance of an LTIP
award will be subject to
performance measures
based on non-financial
measures aligned
with the Company’s
strategic priorities.
Subject to the
Committee’s discretion
to amend the formulaic
output, awards will
vest up to 25% for
threshold performance,
rising to 100% for
maximum performance.
Policy for Executive Directors continued
Remuneration policy continued
TheWorks.co.uk plc Annual Report and Accounts 202266
Component Purpose and link to strategy Operation Maximum opportunity Performance measures
All
employee
share
plans
Provision of the Save As
You Earn (‘SAYE’) Scheme
creates staff alignment
with the Group and
provides a sense of
ownership across the
Group’s employee base.
Executive Directors may
participate in any other
all employee share plan
as may be introduced
from time to time.
Tax qualifying monthly savings
scheme facilitating the purchase
of shares at a discount.
Any other all employee share plan
would be operated for Executive
Directors in accordance with its rules
and on the same basis as for other
qualifying employees.
The limit on participation
and the permitted
discount under the SAYE
Scheme will be those set
in accordance with the
applicable tax legislation
from time to time.
The limit on participation
and other relevant terms
of any other all employee
share plan would be
determined in accordance
with the plan rules (and,
where relevant, applicable
legislation) and would be
the same for the Executive
Directors as for other
relevant employees.
Not subject to
performance conditions
in line with typical
market practice.
Recovery provisions (malus and clawback)
Malus: The annual bonus opportunity and unvested deferred share awards may be cancelled or reduced before payment and an
LTIP award may be cancelled or reduced before vesting in the event of material error in assessing a performance condition, material
misstatement of results, material failure of risk management, material misconduct, corporate failure or serious reputational damage.
Clawback: For up to two years following payment of a bonus and until the fifth anniversary of the grant of an LTIP award, the bonus may
be recovered or the LTIP award cancelled or reduced (if it has not been exercised) or the Executive Director may be required to make
a payment to the Company in respect of some or all of the shares acquired in the event of material error in assessing a performance
condition, material misstatement of results, material failure of risk management, material misconduct, corporate failure or serious
reputational damage.
Malus and clawback may be applied to any CSOP option granted under the LTIP to the extent permitted by the applicable tax legislation.
Explanation of performance metrics
Performance measures for the LTIP and annual bonus are selected to reflect the Company’s strategy. Stretching performance targets
are set each year by the Committee taking into account a number of different factors.
Annual bonus: The Committee currently considers that EBITDA is closely aligned with the Group’s key performance metrics, and
encourages sustainable growth year by year. Where strategic measures are applied, the bonus rewards the achievement of objectives
linked to the future execution of strategy.
LTIP: The application of EPS to the LTIP aligns management’s objectives with those of shareholders for the longer term, whilst the use
of a share price measure is directly aligned with shareholder value.
The Committee may vary or substitute any performance measure if an event occurs which causes it to determine that it is appropriate
to do so (including to take account of acquisitions or divestments, a change in strategy or a change in prevailing market conditions),
provided that any such variation or substitution is fair and reasonable and (in the opinion of the Committee) the change would not make
the measure less demanding than the original measure would have been but for the event in question. If the Committee were to make
such a variation, an explanation would be given in the next Directors’ remuneration report.
Operation of share plans
The Committee may amend the terms of awards and options under its share plans in accordance with the plan rules in the event of
a variation of the Company’s share capital or a demerger, special dividend or other similar event or otherwise in accordance with the
rules of those plans. The Committee may operate any such plan in accordance with its rules. Share awards granted under any such plan
may be settled in cash or granted as a right to receive a cash amount calculated by reference to a number of notional shares, although
the Committee would only do so where the particular circumstances made this the appropriate course of action (for example where
a regulatory reason prevented the delivery of shares).
TheWorks.co.uk plc Annual Report and Accounts 2022 67
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Shareholding guidelines
To align the interests of the Executive Directors with those of shareholders, the Committee has adopted formal shareholding guidelines.
Executive Directors are required to retain half of all shares acquired under the LTIP (after sales to cover tax and any exercise price) until
such a time as their holding as a value is equal to 200% of salary. Shares subject to LTIP awards which have vested but not been released
(that is which are in a holding period), or which have been released but have not been exercised, and shares subject to deferred bonus
awards, count towards the guidelines on a net of assumed tax basis.
The Committee has adopted a formal post-employment shareholding guideline, which will apply with effect from the approval of the
Policy. Shares are subject to this guideline only if they are acquired pursuant to LTIP or deferred bonus awards granted after 1 May 2022.
Following employment, an Executive Director must retain for one year such of their relevant shares as have a value (as determined by
the Committee) equal to 200% of their salary (or, if fewer, all of their relevant shares). The Committee has discretion to waive or vary the
post-employment shareholding guideline in exceptional circumstances (for example, in compassionate circumstances, or on a change
of control or if a conflict of interest arises with an Executive Director’s next appointment).
Policy for Non-Executive Directors
Component Purpose and link to strategy Operation Maximum opportunity
Fees and benefits To provide fees within a market
competitive range reflecting
the individual, responsibilities
or the role and the expected
time commitment.
To provide benefits where
appropriate which are relevant
to the requirements of the role.
The fees of the Chair are determined
by the Committee and the fees of
the Non-Executive Directors are
determined by the Board.
Non-Executive Directors may
be eligible to receive benefits
such as travel and other
reasonable expenses.
Fees are set taking into account
the responsibilities of the role and
expected time commitment.
Non-Executive Directors are paid
a single all-inclusive fee.
A basic fee with additional fees
paid for chairing of Committees
and assuming the role of Senior
Independent Director, may be
introduced in the future.
Where benefits are provided to
Non-Executive Directors they will be
provided at a level considered to
be appropriate taking into account
individual circumstances.
Policy for the remuneration of employees more generally
The Group aims to provide a remuneration package that is competitive and which is appropriate to promote the long term success
of the Company. The Company intends to apply this policy fairly and consistently and does not intend to pay more than is necessary
to attract and motivate colleagues. In respect of the Executive Directors, a greater proportion of the remuneration package is ‘at risk’
and determined by reference to the performance conditions.
Base salaries are reviewed annually together with all employees and increases ordinarily become effective from 1 May. The Committee
is kept informed of salary increases across the wider workforce and how decisions are made.
The Board believes that Group success should be shared amongst the wider workforce and therefore, where the business performs
strongly, will reward employees taking into account levels of contribution and responsibility.
The Group operates a SAYE Scheme to encourage share ownership across the wider workforce and alignment in longer-term goals.
Remuneration policy continued
TheWorks.co.uk plc Annual Report and Accounts 202268
Illustration of Policy application
The following charts provide an illustration, for each of the Executive Directors, of the application of the Policy in FY23. The charts show the
split of remuneration between fixed pay (that is base salary, benefits, employer pensions contributions/salary supplement), annual bonus
and long-term incentive pay on the basis of minimum remuneration, remuneration receivable for performance in line with The Works’
expectations, and maximum remuneration (including and excluding share price appreciation of 50% on the LTIP outcome).
Basic salary and benefits
Bonus
Long-term Incentives
Gavin Peck
0£’000 200
400 600 800 1,000
331,270Minimum
1,200
Maximum
949,270
Maximum Plus*
1,103,770
640,270
Target
Steve Alldridge
0 200
400 600 800 1,000
234,789Minimum
Maximum
667, 389
Maximum Plus*
775,539
451,089
Target
Fixed pay Annual bonus LTIP
Minimum performance Base salary (being £309,000
in the case of Gavin Peck and
£216,300 in the case of Steve
Alldridge), employer pension
contributions at an assumed
rate of 3% on the latest known
salary, and benefits disclosed
in the single figure table
on page 73 for the 2022
financial year.
No bonus No LTIP vesting
Performance in line with
expectations
Bonus equal to 50%
of salary is earned
LTIP vests as to 50% of the
maximum award, based on
current practice
Maximum performance Bonus equal to 100%
of salary is earned
LTIP vests in full (100% of salary)
Maximum performance with
share price appreciation of 50%
Bonus equal to 100%
of salary is earned
LTIP vests in full (100% of
salary) plus share price
appreciation of 50%
Recruitment remuneration policy
When hiring a new Executive Director, the Committee will typically align the remuneration package with the Policy.
When determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers are
appropriate. However, this discretion is capped and is subject to the limits referred to below.
Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include
agreement on future increases up to market rate, in line with increased experience and/or responsibilities, subject to good performance,
where it is considered appropriate. Pension will be provided in line with the Policy.
The Committee will not offer non-performance related incentive payments (for example a guaranteed sign-on bonus).
Other elements may be included in the following circumstances:
•
an interim appointment being made to fill an Executive Director role on a short term basis;
•
if exceptional circumstances require that the Chair or a Non-Executive Director takes on an executive function on a short term basis;
•
if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long- term incentive
award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out
below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward
is provided on a fair and appropriate basis; and
•
if the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation,
travel and subsistence payments. Any such payments will be at the discretion of the Committee.
The Committee may also alter the performance measures, performance period, vesting period and holding period of the annual
bonus or long-term incentive opportunity if the Committee determines that the circumstances of the recruitment merit such alteration.
The rationale will be clearly explained in the next Directors’ remuneration report.
The maximum level of variable remuneration which may be granted (excluding buyout awards as referred to below) is 300% of salary.
The Committee may make payments or awards in respect of hiring an Executive Director to ‘buy out’ remuneration arrangements
forfeited in connection with leaving a previous employer. In doing so, the Committee will take account of relevant factors including any
performance conditions attached to the forfeited arrangements and the time over which they would have vested. The Committee will
generally seek to structure buyout awards or payments on a comparable basis to the remuneration arrangements forfeited. Any such
payments or awards are excluded from the maximum level of variable remuneration referred to above. Buyout awards will ordinarily
be granted on the basis that they are subject to forfeiture or clawback in the event of departure within 12 months of joining The Works,
although the Committee will retain discretion not to apply forfeiture or clawback in appropriate circumstances.
* Total value of remuneration package plus 50% increase in
share price.
TheWorks.co.uk plc Annual Report and Accounts 2022 69
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Remuneration policy continued
Recruitment remuneration policy continued
Any share awards referred to in this section will be granted as far as possible under The Works ordinary share plans. If necessary, and
subject to the limits referred to above, recruitment awards may be granted outside of these plans as permitted under the Listing Rules
which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements will continue in
accordance with their terms.
Fees payable to a newly appointed Chair or Non-Executive Director will be in line with the policy in place at the time of the appointment.
Policy on service contracts
The Company’s policy is for service agreements with Executive Directors to be capable of termination by either the Company or the
Executive Director by the giving of not more than 12 months’ notice. The Non-Executive Directors (including the Chair) do not have service
contracts, but are instead engaged via letters of appointment. Information in relation to the Executive Directors’ service agreements and
the Non-Executive Directors’ letters of appointment is set out on page 52.
Policy on payments for loss of office
The following table summarises the Company’s policy on the determination of payments for loss of office by Executive Directors.
Provision Treatment
Fixed remuneration Salary/fees, benefits and pension will be paid to the date of termination.
Payment in lieu of notice Where a payment in lieu of notice is made, this will include salary, benefits and pension (or a cash
equivalent) until the end of the notice period that would otherwise have applied. Alternatively, the
Company, may continue to provide the relevant benefits. Unless the Committee determines otherwise,
amounts will be paid in equal monthly instalments. Mitigation will apply.
Annual Bonus This will be reviewed on an individual basis taking into account the terms of the relevant service
agreement. The decision whether or not to award a bonus in full or in part will be dependent on a
number of factors including the circumstances of the departure, contribution to the business during the
bonus period and the terms of the service agreement. Any bonus would typically be pro-rated to reflect
time in service to termination and paid at the usual time (although the Committee retains discretion to
pay the bonus earlier in appropriate circumstances).
Any outstanding deferred bonus awards would typically continue (other than in the event of dismissal for
gross misconduct, where the entitlement would lapse) and vest at the normal vesting date, although the
Committee retains discretion to vest any such award at the date of cessation. In either case, the award
will vest in full, unless the Committee determines the award should be reduced to take account of the
proportion of the deferral period that has elapsed at cessation.
LTIP If an Executive Director ceases employment with the Group as a result of death, ill-health, injury,
disability or for any other reason at the Committee’s discretion before an award under the LTIP vests, the
award will usually be released on the ordinary release date (although the Committee retains discretion
to release the award as soon as reasonably practicable after the cessation of employment or at some
other time, such as following the end of the performance period in the case of an award that would
otherwise be subject to a holding period). In either case, the award will vest to the extent determined
by reference to the performance conditions and, unless the Committee determines otherwise,
the proportion of the performance period that has elapsed at cessation.
If an Executive Director ceases employment with the Group after an award under the LTIP has vested
but before it is released (that is the Executive Director ceases employment during a holding period), the
award will continue and be released at the normal release date (unless the cessation is due to dismissal
for gross misconduct, in which case the awards will lapse). The award will be released to the extent it has
vested by reference to performance conditions. The Committee retains discretion to release the award
at cessation.
Change of control In the event of a change of control, unvested awards under the LTIP will vest and be released to the
extent determined by the Committee taking into account the relevant performance conditions and,
unless the Committee determines otherwise, the extent of vesting so determined shall be reduced
to reflect the proportion of the performance period that has elapsed.
Any deferred bonus shares will vest on a change of control or other relevant event.
Options under the SAYE Scheme will vest on a change of control.
TheWorks.co.uk plc Annual Report and Accounts 202270
Provision Treatment
Other payments The Committee reserves the right to make additional exit payments where such payments are
made in good faith in discharge of an existing legal obligation (or by way of damages for breach of
such obligation) or by way of settlement or compromise of any claim arising in connection with the
termination of a Director’s office or employment. Payments may include, but are not limited to, paying
any fees for outplacement assistance and/or the Director’s legal and/or professional advice fees in
connection with his/her cessation of office or employment and payments in respect of accrued but
untaken holiday.
Where a buyout or other award is made in connection with recruitment, the leaver provisions would
be determined at the time of the award.
Options under the SAYE Scheme will vest on cessation in accordance with the plan rules, which do not
allow discretionary treatment.
The Non-Executive Directors are not entitled to compensation for termination of their appointment.
Consideration of employment conditions elsewhere in the Group
Whilst the Committee does not formally consult with employees as part of its process when determining Executive Director pay, it does
take into account pay practices and policies of employees across the wider Group. This includes the general basic salary increase,
remuneration arrangements and employment conditions.
Consideration of shareholders’ views
The Committee welcomes dialogue with its shareholders. Shareholder views are considered when evaluating and setting the
remuneration strategy and the Committee has consulted with key shareholders in relation to the Policy, and will do so in relation to any
significant change to it.
Legacy remuneration arrangements
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any
discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy where the terms
of the payments were agreed:
•
either before the Policy comes into effect, provided that if they were agreed on or after 28 August 2019 (the date on which the
Company’s first shareholder approved Directors’ Remuneration Policy came into effect) they are in line with the Directors’ Remuneration
Policy in effect at the date they were agreed; and
•
or at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not
in consideration for the individual becoming a Director of the Company.
For these purposes ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are ‘agreed’ at the time the award is granted.
TheWorks.co.uk plc Annual Report and Accounts 2022 71
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
This report has been prepared in accordance with the applicable regulations and the Code.
Composition of the Committee
The members of the Committee are Catherine Glickman (Chair), Carolyn Bradley and Harry Morley.
Duties and responsibilities
The Committee’s key responsibilities are:
•
reviewing the on-going appropriateness and relevance of Remuneration Policy and agreeing a new policy for shareholders to approve
at the 2022 AGM;
•
reviewing and approving the remuneration packages of the Executive Directors;
•
recommending and monitoring the level and structure of remuneration of senior management; and
•
production of the annual report on the Directors’ remuneration.
When determining the application of the Directors’ Remuneration Policy in FY22, the Committee considered the factors of clarity,
simplicity, risk, predictability, proportionality and alignment to culture as referred to in the Code. As with the approach in FY21, these were
reflected, in particular, in the Executive Directors’ LTIP awards which are subject to simple and transparent performance measures based
on our appetite for risk, with specific monetary caps added as a further risk mitigation.
As part of its work, the Committee reviewed the remuneration for the wider workforce and related policies and takes these into account
when setting the Policy for Executive Director and senior management remuneration.
Meetings and attendees
The Committee met a total of four times during the year and has met three times since the year end. All members attended those
meetings.
Performance evaluation
The evaluation of the performance of the Board and its Committees during the year was conducted using questionnaires and was
facilitated by the Company Secretary. The questionnaires included a section on the work of the Committee.
The evaluation outcome was discussed at the Remuneration Committee’s April 2022 meeting. It confirmed that the Committee operates
effectively but reiterated the need for the Committee to continue to ensure that the Remuneration Policy and incentive arrangements
operate effectively to incentivise, motivate and retain the Executive and Operational Directors, and senior management.
Advisers
The following people have provided advice to the Committee during the year in relation to its consideration of matters relating to
Directors’ remuneration:
•
Chair, CEO, CFO, People Director and Company Secretary; and
•
Deloitte LLP (Deloitte).
Deloitte is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration Consultants
Group and, as such, voluntarily operated under the Code of Conduct in relation to executive remuneration consulting in the UK. Deloitte
fees for providing remuneration advice to the Committee were £23,950 for FY22. The Committee assesses from time to time whether
this appointment remains appropriate or should be put out to tender and takes into account Remuneration Consultants Group Code of
Conduct when considering this.
Deloitte was appointed by the Committee and has provided share scheme advice and general remuneration advice to the Company.
Annual report on remuneration
TheWorks.co.uk plc Annual Report and Accounts 202272
Single figure table – audited information
The following table sets out total remuneration in respect of FY22 for each person who served as a Director in that year, along with the
corresponding remuneration for FY21:
Salary and
fees
1
£000
Benefits
2
£000
Pension
3
£000
Annual
bonus
4
£000
Long-term
incentive
5
£000
Total
£000
Total fixed
remuneration
£000
Total variable
remuneration
£000
Executive Directors
Gavin Peck
6
2022 300 13 9 234 56 612 322 290
2021 283 11 9 — — 303 303
—
Steve Alldridge
(appointed 14 May
2021) 2022 203 12 6 163 — 384 221 163
2021 N/A N/A N/A N/A N/A N/A N/A
N/A
Non-Executive
Directors
Dean Hoyle
(stepped down 30
September 2021)
7
2022 25 — — N/A N/A 25 25 N/A
2021 67 — — N/A N/A 67 67 N/A
Carolyn Bradley
(appointed 30
September 2021) 2022 59 — — N/A N/A 59 59 N/A
2021 N/A N/A N/A N/A N/A N/A N/A N/A
Harry Morley
8
2022 55 — — N/A N/A 55 55 N/A
2021 52 — — N/A N/A 52 52 N/A
Catherine Glickman
8
2022 50 — — N/A N/A 50 50 N/A
2021 47 — — N/A N/A 47 47 N/A
1 Salary and fees: The amount of salary/fees earned in respect of the year. The salary and fees for 2021 (and 2022 in the case of Dean Hoyle) reflect the
voluntary reductions referred to below.
2 Benefits: The taxable value of benefits received in the year: these are principally private medical insurance and car or car allowance. For Gavin Peck the
2022 benefits figure includes his SAYE option granted in August 2021, valued as the aggregate discount of the exercise price from the share price used to
determine the exercise price.
3 Pension: The pension figure represents the cash value of pension contributions for the Executive Director to the defined contribution pension arrangement
and any cash payments in lieu of pension contributions made in the year.
4 Annual bonus: The cash value of the bonus earned in respect of the financial year. Details in relation to the bonuses earned for FY22 are set out below.
5 Long-term incentives: Gavin Peck was granted an LTIP award in September 2019 which vested by reference to EPS performance over the three financial
years ending with FY22. Details of the performance targets and the vesting outturn are set out below. In the single figure table, the value of the LTIP is
calculated by reference to a share price of £0.57, being the three month average share price to the end of FY22.
6 As disclosed in the FY21 Directors’ remuneration report, Gavin Peck’s salary for FY22 remained at £300,000, and Steve Alldridge’s was set at £210,000 on
his appointment to the Board. In FY21, in response to the closure of stores and furloughing of colleagues due to the pandemic, Gavin Peck agreed to a 33%
salary reduction from 1 April 2020 to 30 June 2020.
7 In FY21 in response to the closure of stores and furloughing of colleagues due to the pandemic, the then Chair, Dean Hoyle, agreed to a 100% fee reduction
from 1 March 2020 to 31 May 2020 and to a further 100% fee reduction from 1 February 2021 to 30 June 2021.
8 Harry Morley and Catherine Glickman agreed to a 33% fee reduction from 1 April 2020 to 30 June 2020.
Details of Chair and Non-Executive Directors’ fees are set out below. These are the same fee levels as have applied since Admission.
Base fee
£000
Chair’s fee 100,000
Harry Morley 55,000
Catherine Glickman 50,000
TheWorks.co.uk plc Annual Report and Accounts 2022 73
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Annual incentive plan – audited information
Each Executive Director was eligible to earn a bonus in respect of FY22 of up to 100% of salary. 90% of the award was based on stretching
EBITDA targets, which took account of business rates relief during the year: this paid out at 76.1%. The remaining 10% was based on
performance against key strategic objectives, as set out below, with any payout in respect of the strategic objectives element being
subject to the achievement of a threshold level of EBITDA performance.
EBITDA element
Performance
(£m)
Vesting
(% of maximum
the EBITDA
element)
Actual
performance
(£m)
Bonus earned for
EBITDA element
(% of maximum
for EBITDA
element)
Bonus earned
for EBITDA
element
(% of salary)
Target 15 50%
16.6 76.1% 68.5%
Maximum 18 100%
Strategic objectives element
Executive Director Achievement against Objectives
Bonus
earned for
strategic
objective
element
(% of salary)
Gavin Peck
Develop The Works’ brand, and
communicate the value of the business
externally
•
Developed and communicated the updated purpose, values and three-year
strategic plan externally and internally.
•
Increased positive analyst and media engagement during the year, and meetings
with brokers and potential investors.
9.5%
Defining and developing The Works’
brand proposition
Lead the definition of the brand and
customer proposition, and develop The
Works’ ESG strategy.
Develop the brand and customer
proposition to grow the customer base,
improve customer engagement and
optimise the loyalty programme.
•
Brand evolution defined and approved by the Board, with clear articulation of
brand differentiators and positioning. Plans developed to deliver this brand refresh
across the business during FY23.
•
Product proposition reviewed, aligned to new purpose. Implementation underway with
clear evidence of this driving sales growth and appealing to new customers.
•
Established and chaired the ESG steering group, signed off objectives and
workstreams and delivered progress against workstreams.
•
Loyalty scheme reviewed and future strategy developed including evolution of
branding and more proactive marketing of the offering.
Develop our people – leadership and
capability
Increase leadership capability through
embedding and developing a strong
and well-functioning Operational Board.
•
Appointment of Commercial Director, Head of Brand, Head of IT Service and Head of Profit
Protection; investment in IT, Commercial Buying and Marketing teams to build capability.
•
Maintained status in Best Places to Work Colleague Survey, coming 13th amongst Top
25 Big Companies to work for with 2% improvement in Leadership score.
•
Leading a high-performing, collaborative and driven Operational Board; high-
quality individual and collective targets set.
Additional Achievement
•
Highly effective leadership navigating global freight challenges and through the
cyber attack; the investment in accelerating future IT investment has resulted in
robust security.
Steve Alldridge
Stakeholder engagement
Drive increased engagement with key
stakeholders – shareholders and banks
specifically post COVID-19.
•
Proactive and constructive engagement with stakeholders during FY22, appropriately
taking into consideration the stage of the Group’s strategic and financial development.
•
Refinancing completed with commercially competitive terms and fees.
9%
Improving business insight
and reporting
Sponsor project to improve data and
performance reporting capabilities,
focused on trading performance and
stock integrity and accuracy.
•
Project plan developed to improve data and reporting; stymied because of other
priorities during year. This will be reset as a FY23 priority: investment in additional IT
resources will support delivery of this objective in the new financial year.
•
Investment in commercial financial planning resource and capability to develop
team and drive improvement in data and performance reporting capabilities
alongside investment in IT systems.
Strengthen our ESG credentials –
control environment
Improve our financial control environment,
by strengthening the finance team and
reviewing key financial processes and
controls, specifically stock.
•
Significant strengthening of finance leadership and team, with improvement in
engagement scores.
•
Review of key finance processes/controls completed; significant strengthening and
embedding of disciplines ahead of FY23, including supporting the establishment of
the new Profit Protection function.
•
Maintained tight internal cost control and cash flow management.
Lead The Works’ financial plan update
•
3 year financial plan updated and aligned with updated strategy.
Gavin Peck and Steve Alldridge therefore earned a bonus equal to 78% of salary and 77.5% of salary respectively.
Annual report on remuneration continued
TheWorks.co.uk plc Annual Report and Accounts 202274
Long-term incentives
2019 LTIP award vesting
Gavin Peck was granted an LTIP award in September 2019 which vested by reference to EPS performance over the three financial years
ending with FY22, as set out below. The award will not be released to Gavin so that he can exercise it until the end of a further two year
holding period.
Shares under
award
Threshold
performance
(compound
annual growth in
EPS)
2
20% vesting
Maximum
performance
(compound
annual growth
in EPS)
2
100% vesting
Actual
performance
(compound
annual growth in
EPS)
Vesting
percentage Vested shares
Value of vested
shares
3
Dividend
equivalent
4
Total value
250,617
1
10% 22.1% 12.8% 38.4% 96,151 £54,806 £1,154 £55,960
1 In addition to his LTIP award, Gavin was granted a tax qualifying CSOP option over 37,037 shares with an exercise price of £0.81 per share. To the extent the
CSOP award is exercised at a gain, the extent to which the associated LTIP award can be exercised shall be reduced by the amount of the gain so that
there is no increase in the pre-tax value of the award. Accordingly, the CSOP award is ignored for the purposes of the table above.
2 Straight-line vesting applies for performance between threshold and maximum.
3 In the table above, the value of the vested shares is estimated based on the three-month average share price to the end of FY22 (£0.57).
4 In accordance with the LTIP rules and the Current Policy, Gavin Peck will be awarded additional shares in respect of dividends over the period to the
release of the award. In the period to the date of vesting, these dividend equivalents have a value of £1,154. The number of shares will be determined
following the release of the award.
The 2019 LTIP award was granted when the share price was £0.81. The value of the vested shares is estimated based on a share price of
£0.57. Therefore, 0% of the value of vested shares is attributable to share price appreciation since the grant date. The Committee did not
consider that it was necessary to exercise discretion in respect of share price movements since the grant date.
Long-term incentives - awards granted during the FY22 – Audited information
LTIP awards were granted to Gavin Peck and Steve Alldridge on 30 September 2022 equal to 100% of salary on the following basis:
Type of award
Maximum
opportunity
Number of
shares
Face value at
grant £
1
% of award vesting
at threshold Performance period
2
Gavin Peck LTIP 100% of salary 638,297 299,999 20% See footnote 2
Steve Alldridge LTIP 100% of salary 446,808 209,999 20% See footnote 2
1 For these purposes, the face value of an award is calculated by multiplying the number of shares over which the award was granted by 47 pence,
the average closing share price for each of the three business days prior to the date of grant.
2 Each award is subject to performance conditions assessed over the Company’s FY22, FY23 and FY24 financial years as regards the EPS element of the
performance condition, with the share price element of the performance condition assessed following the announcement by the Company of its Full Year
Trading Update for its FY24 financial year (as described further below). To the extent an award vests following the end of the performance period, it is
subject to a further two-year holding period before the shares are released.
A summary of the performance conditions for these awards (with half of each award based on EPS, and half on share price) is set out on
page 77. The Committee believes that the Executive Directors have direct influence over both measures, and that targets are stretching
but achievable.
SAYE Scheme options granted during FY22 – audited information
Gavin Peck was granted a SAYE Scheme option on 31 August 2021 as detailed below as part of the SAYE Scheme offer made to all
eligible colleagues.
Type of award
Number of
shares Exercise price
1
Face value at
grant (£)
2
Gavin Peck SAYE option 16,363 £0.55 11,160
1 In line with the SAYE scheme, this is set at a 20% discount to 68.2 pence, the average closing share price on 3, 4 and 5 August 2021, the three business days
prior to the date of invitation.
2 For these purposes, the face value of the option is calculated by multiplying the number of shares over which the option was granted by 68.2 pence the
average closing share price for each of the three business days prior to the date of invitation.
TheWorks.co.uk plc Annual Report and Accounts 2022 75
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Statement of Directors’ shareholding and share interests – audited Information
The number of shares of the Company in which the Directors had a beneficial interest, together with details of the Executive Directors
long-term incentive interests, as at 1 May 2022, are set out in the table below.
Outstanding scheme interests’ 1 May 2022 Beneficially owned shares
Unvested LTIP
interests
subject to
performance
conditions
Scheme
interests not
subject to
performance
measures
Total shares
subject to
outstanding
scheme
interests
1
3 May 2021 1 May 2022
Total of all
scheme
interests and
shareholdings
at 1 May 2022
Executive Directors
Gavin Peck 1,736,371 – 1,736,371 554,636 554,636 2,291,007
Steve Alldridge 446,808 — 446,808 — — 446,808
1 The tax qualifying CSOP awards granted as part of the 2019 awards are not included in these numbers, reflecting that if they were to be exercised the LTIP
element of those awards would be reduced to reflect the gain on the CSOP element, as referred to on page 77.
Outstanding scheme interests’ 1 May 2022 Beneficially owned shares
Unvested LTIP
interests
subject to
performance
conditions
Scheme
interests not
subject to
performance
measures
Total shares
subject to
outstanding
scheme
interests 3 May 2021 1 May 2022
Total of all
scheme
interests and
shareholdings
at 1 May 2022
Non-Executive Directors
Carolyn Bradley — — — N/A 105,866 105,866
Harry Morley — — — 100,000 200,000 200,000
Catherine Glickman — — — 31,812 77,244 77,244
On 21 July 2022, Carolyn Bradley purchased 73,870 shares, bringing her total holding to 179,736. On 10 August 2022, Kate Morley (a person
closely associated with Harry Morley), purchased 75,000 shares making Harry Morley’s total holding 275,000 shares. On 18 August
2022, Catherine Glickman purchased 103,789 shares, bringing her total holding to 181,033. There have been no further changes to the
beneficially owned interests of the Directors between 1 May 2022 and the date of this report other than the partial lapse of Gavin Peck’s
LTIP award granted in 2019, as referred to in the footnotes to the following table.
Annual report on remuneration continued
TheWorks.co.uk plc Annual Report and Accounts 202276
Executive Directors’ interests under share schemes – audited information
The table below sets out the Executive Directors’ interests in the LTIP.
The LTIP awards are subject to performance conditions as set out in the table below.
Award date
Vesting, exercise
or release date
As at
3 May
2021
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Number of
shares at
1 May
2022
Exercise
price
Gavin Peck
LTIP 22 August 2018
1
N/A 116,959 – – 116,959 — N/A
3 September 2019
2
September 2022 250,617 – – – 250,617 N/A
15 February 2021 June 2023 847,457 – – 847,457 N/A
30 September 2021 June 2024 638,297 638,297
SAYE 31 August 2021 1 October 2024 — 16,363 16,363 55 pence
Steve Alldridge
LTIP 30 September 2021 June 2024 — 446,808 — — 446,808 N/A
1 I n addition to his LTIP award, Gavin Peck was also granted a tax qualifying CSOP awards over 17,543 shares with an exercise price of £1.71 (2018) and 37,037
shares with an exercise price of £0.81 (2019). To the extent a CSOP award is exercised at a gain, the extent to which the associated LTIP award can be
exercised shall be reduced by the amount of the gain so that there is no increase in the pre-tax value of the award. The CSOP award granted in 2018
lapsed as referred to in the FY21 Directors’ Remuneration Report.
2 38.4% of Gavin Peck’s LTIP award granted in 2019 vested by reference to EPS performance over the three financial years ending with FY22. The remaining
portion of the award has lapsed. The vested portion of the award will not be released to Gavin so that he can exercise it until the end of a further two year
holding period.
The performance condition applying to Gavin Peck’s LTIP award granted in 2019 is summarised on page 75.
Vesting of the LTIP award made in February 2021 is based on EPS and share price targets which are set out in the FY21 Directors’
Remuneration Report, along with details of the performance underpin, ‘windfall gains’ underpin and cap.
Vesting of the LTIP awards made in September 2021 is based on EPS and share price targets as set out in the table below.
Measure Weighting Threshold (20% vesting) Maximum (100% vesting)
EPS
1
50% 5.6 pence 15.6 pence
Share Price
2
50% £0.57 £2
1 Basic EPS for the Company’s FY24, pre-IFRS16 and subject to such adjustments as the Remuneration Committee determines to ensure that performance is
assessed on a fair and consistent basis.
2 Average share price over the period of four weeks beginning with the announcement by the company of its Full Year Trading Update for its 2023/2024
financial year.
The awards are subject to a general performance underpin, whereby the Committee shall assess overall financial performance of the
Group over the performance period in determining the level of vesting and an assessment of whether any of the value of the awards on
assessment of the performance conditions represents a ‘windfall gain’. The awards are also subject to a cap such that the value of the
vested shares, determined by reference to the price used to assess the share price element of the performance condition may not exceed
£2,500,000 in the case of Gavin Peck’s award and £1,750,000 in the case of Steve Alldridge’s award.
Directors’ share ownership guidelines – Audited information
The Committee has adopted a shareholding guideline for the Executive Directors, which requires, as at the date of this Annual Report, a
shareholding equivalent to 200% of base salary for the CEO and 100% of base salary for other Executive Directors. As noted above, under
the Policy, the shareholding requirement will be increased to 200% of salary for all Executive Directors. Gavin Peck’s and Steve Alldridge’s
shareholding as at 1 May 2022, is summarised below.
Executive Director
Number
of shares
counting
towards the
guideline at
1 May 2022
Value of
shares
counting
towards
the guideline
1
Value of
shares as
a percentage
of base salary
Shareholding
guideline met?
Gavin Peck 554,636 £315,588 105% In progress
Steve Alldridge — — — In progress
1 Based on a share price of 56.9 pence as at 29 April 2022 (being the last trading day prior to the year end of 1 May 2022).
TheWorks.co.uk plc Annual Report and Accounts 2022 77
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Performance graph and historical CEO remuneration outcomes
The graph below shows the total shareholder return (TSR) performance for the Company’s shares in comparison to the FTSE SmallCap for
the period from Main Market Admission on 19 July 2018 to 1 May 2022. The TSR performance of the FTSE SmallCap index has been selected
as it is considered the most appropriate comparator group. For the purposes of the graph, TSR has been calculated as the percentage change
in the market price of the shares during the period, assuming that dividends are reinvested. The graph shows the value, as at 1 May 2022,
of £100 invested in shares in the Company on 19 July 2018 compared with £100 invested in the FTSE SmallCap.
Jul 2018 Oct 2018 Jan 2019 Apr 2019 Oct 2019 Jan 2020 Jul 2020 Jul 2021Apr 2020 Jan 2021 Jan 2022Apr 2021 Apr 2022Jul 2019 Oct 2020 Oct 2021
0
20
40
80
140
150
120
100
60
Total shareholder return (rebased to £100)
TheWorks.co.uk plc FTSE SmallCap
The table below sets out the CEO’s total remuneration over the last four financial years, valued using the methodology applied to the single
total figure of remuneration. The Committee does not believe that the remuneration paid in earlier years as a private company bears any
comparative value to that paid in its time as a public company and, therefore, the Committee has chosen to disclose remuneration only for
the four most recent financial years (with the figures for FY19 being for the period from Admission on 19 July 2018 to 28 April 2019):
Year (CEO)
Total single
figure
remuneration
£000
Annual
bonus payout
(% of maximum
opportunity)
LTIP vesting
(% of maximum
number of
shares)
2022 (Gavin Peck) 612 78% 38.4%
2021 (Gavin Peck) 303 0% 0%
2020 (Gavin Peck – from 16 January 2020) 85 0% N/A
1
2020 (Kevin Keaney – until 16 January 2020) 267 0% N/A
1
2019 (Kevin Keaney) 288 0% N/A
1
1 There were no LTIP capable of vesting in respect of performance ending during the relevant year.
Change in remuneration of Directors compared to group employees
The table below sets out the annual change in salary and fees, benefits and bonus paid to each of the Directors from FY21 to FY22. The
regulations also require a comparison of the change in the remuneration of the employees of TheWorks.co.uk plc. The Company has no
employees other than the Executive Directors and, accordingly, strictly no disclosure is required. Given the added complexities of the
impact in FY21 of furlough, the Company has not included the average employee salary changes between FY20 and FY21 or between FY21
and FY22, but, in the interests of transparency and having regard to the approach adopted in FY20 and FY21 has provided information on
the approach to the change in salary of the Group’s UK employees.
Steve Alldridge and Carolyn Bradley were appointed during FY22 and, accordingly, have been excluded from the table below. Notes to
the table provide additional information in relation to the changes shown and additional information in relation to the changes in previous
years is set out in the relevant previous Directors’ remuneration reports.
Annual report on remuneration continued
TheWorks.co.uk plc Annual Report and Accounts 202278
Executive Directors Non-Executive Directors UK employees’ average
Gavin Peck Catherine Glickman Harry Morley Dean Hoyle
Salary/Fees FY20 – FY21 27% (2%) (2%) (23%) See note 5
FY21 – FY22 6%
1
6%
1
6%
1
24%
4
Taxable benefits FY20 – FY21 0% N/A N/A N/A 23.49%
FY21 – FY22 18%
2
N/A N/A N/A (17.8%)
6
Annual bonus FY20 – FY21 N/A N/A N/A N/A (60.40%)
FY21 – FY22 N/A
3
N/A N/A N/A See note 7
1 Gavin Peck’s, Catherine Glickman’s and Harry Morley’s salaries were not increased for FY22, and the increase reflects their voluntary reduction in
remuneration in FY21 as explained on page 73 and disclosed in the FY21 Directors’ remuneration report.
2 Increase reflects increase due to SAYE discount included in taxable benefits.
3 No annual bonus was earned by Gavin Peck in respect of FY21. Therefore, the percentage change between FY21 and FY22 is not considered to be a
meaningful disclosure.
4 Dean Hoyle stepped down from the Board on 30 September 2021. For the purposes of this table, his FY22 fees have been annualised to reflect the fees
he would have earned had he not stepped down from the Board in order to provide a meaningful disclosure, but the voluntary reduction in his fees as
referred to on page 73 is taken into account.
5 The vast majority of colleagues were furloughed for long periods of FY21, and the average change in employee salary between FY20 and FY21 and
between FY21 and FY22 would not, therefore, be a meaningful disclosure. During FY21, rates for store and distribution colleagues were increased in line
with increases in the National Living and Minimum Wages, with colleagues aged 25 plus receiving increases of 6.2% in April 2020 and 2.2% in April 2021.
We applied an average 2% increase to non-minimum wage colleagues and maintained wage differentials for store teams. In FY22 rates for store and
distribution colleagues were increased in line with increases in the National Living and Minimum Wages, with colleagues aged 23 plus receiving an
increase of 6.6% in April 2022. We applied an average 3% increase to non-minimum wage colleagues and maintained a wage differential for store teams.
6 The decrease in the UK colleagues’ average benefits predominantly reflects an increase in headcount through the year for those not in receipt of taxable
benefits. Although this is a relatively large percentage decrease, this reflects a decrease in the average value of benefits provided from c.£145 to c.£119.
7 As reported in FY21, standard bonus schemes were removed and only a small number of exceptional bonuses were paid. In FY22 all colleagues (with the
exception of those at Director grade and 2022 new starters) were paid one week’s pay as a one-off bonus and therefore the percentage change between
FY21 and FY22 is not considered to be a meaningful disclosure.
Relative importance of spend on pay
The following table sets out the total remuneration for all employees and the total shareholder distributions in FY21 and FY22. All figures
provided are taken from the relevant Company accounts.
FY21
£000
FY22
£000
Percentage
change
Total remuneration for all employees (including Executive Directors) 49,988 60,031 20.1%
Dividends and share buy backs 0 0 0%
CEO pay ratio
The table below shows how the CEO’s remuneration (as taken from the single figure remuneration table and, therefore, taking into account
the CEO’s voluntary reduction in remuneration in relevant years as disclosed in previous Directors’ remuneration reports and on page 73)
compares to equivalent remuneration for full-time equivalent UK employees, ranked at the 25th, 50th and 75th percentile.
Pay ratio Remuneration values (£)
Year Method 25th percentile Median 75th percentile 25th percentile Median 75th percentile
FY22 Option C 33:1 31:1 28:1 Salary only 18,533 19,115 20,389
Total remuneration 18,637 19,487 21,591
FY21 Option C 17:1 16:1 15:1 Salary only 18,138 18,720 19,448
Total remuneration 18,138 18,720 19,675
FY20 Option C 21:1 19:1 17:1 Salary only 17,077 18,013 19,925
Total remuneration 17,077 18,094 20,338
TheWorks.co.uk plc Annual Report and Accounts 2022 79
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
CEO pay ratio continued
Methodology applied to calculate pay ratios
1. The regulations set out three methodologies for determining the CEO pay ratio. We have chosen ‘Option C’ consistent with the FY20
and FY21 calculations.
2. As ratios could be unduly impacted by joiners and leavers who may not participate in all remuneration arrangements in the year
of joining and leaving, the Committee has modified the statutory basis to exclude any employee not employed throughout the
financial year.
3. Employee pay data is based on full-time equivalent (FTE) base pay for UK employees as at 31 March of the relevant year (based on
FTE salary for salaried employees and hourly pay rates for hourly paid employees), to which actual pension contributions, bonus
and benefits have been added, except that the value of SAYE options has been excluded (for the purposes of the FY20 and FY22
calculations) as their value is not considered to have a significant impact on the CEO pay ratios and sourcing the data for each
employee is administratively burdensome. The employees have then been ranked by FTE pay and benefits calculated on this basis
and the employees at the 25th percentile, 50th percentile (median) and 75th percentile have been identified. The FTE pay and benefits
calculated on this basis for those three employees are then compared to the CEO single figure of remuneration to calculate the ratios;
the calculations do not, therefore, take into account the impact of the identified employees having been furloughed during any year in
which that was relevant.
4. For 2020 the CEO single figure of remuneration used comprises the single total figure for FY20 for Kevin Keaney, plus the single total
figure for Gavin Peck for the period of the year from his appointment as CEO (16 January 2020) to 26 April 2020.
The CEO pay ratio has the potential to vary considerably year on year due to a significant proportion of the CEO’s remuneration package
comprising performance related variable pay. Gavin Peck earned a bonus equal to 78% of salary in respect of FY22 and the LTIP award
granted to him in September 2019 is expected to vest at 38.4% of maximum in September 2022. Gavin Peck received no bonus and no LTIP
vested in respect of FY21. The variance in incentive outcomes between FY21 and FY22 is the primary reason for the increase in the CEO
pay ratio.
The Company considers that the median pay ratio is consistent with pay, reward and progression policies for the Company’s employees
as a whole.
Payments to past Directors and for loss of office – audited information
No payments for loss of office or to past Directors were made during FY21. As disclosed in the FY20 DRR, when Kevin Keaney, the
Company’s former CEO, left the business he retained his LTIP award granted in September 2019. This vested to the same extent as Gavin
Peck’s LTIP award granted in September 2019, meaning that after the time-based pro-ration to reflect the proportion of the performance
period that had elapsed when Mr Keaney left the business, his award has vested in respect of 59,749 shares. The award, including dividend
equivalents (valued at £717 at the date of vesting), will not be released to Mr Keaney until the end of a further two-year holding period.
Implementation of the Policy
Information on how the Committee intends to implement the Policy is set out on page 62 and 63.
Shareholder voting at AGM
The following table shows the results of the binding vote on the Directors’ Remuneration Policy at our 2019 AGM, and the advisory vote on
the Directors’ remuneration report at our 2021 AGM:
Approval of the Remuneration Policy
Approval of the Directors’
remuneration report
Total number
of votes
% of
votes cast
Total
number
of votes
% of
votes cast
For (including discretionary) 50,116,302 99.99 39,533,298 99.96
Against 1,500 0.01 15,288 0.04
Withheld 0 N/A 2,810 N/A
Approval
This report was approved by the Board on 23 September 2022 and signed on its behalf by:
Catherine Glickman
Chair of the Remuneration Committee
23 September 2022
Annual report on remuneration continued
TheWorks.co.uk plc Annual Report and Accounts 202280
The Directors present their report for the financial year ended 1 May 2022. Additional information which is incorporated by reference into
this Directors’ report, including information required in accordance with the Companies Act 2006 and Listing Rule 9.8.4R of the UK
Financial Conduct Authority’s Listing Rules, can be located as follows:
Disclosure Location
Future business developments Strategic report – pages 01 to 46.
Environmental policy ESG review – pages 28 to 38.
Employee engagement Our stakeholders – pages 24 and 25.
ESG review – pages 28 to 38.
Corporate governance report – page 53.
Diversity policy Nomination Committee report – page 58.
Viability Viability statement – pages 45 and 46.
Section 172 statement Page 26.
Stakeholder engagement in key decisions Our stakeholders – pages 24 and 25.
Section 172 statement – page 26.
Corporate governance report – page 50.
Corporate governance compliance statement Corporate governance report – page 50.
Financial risk management objectives and policies
(including hedging policy and use of financial instruments)
Note 25 to the financial statements – pages 119 to 123.
Exposure to price risk, credit risk, liquidity risk and cash flow risk Note 25 to the financial statements – pages 119 to 123.
Details of long-term incentive schemes Directors’ remuneration report – page 75.
Statement of Directors’ responsibilities Page 84.
Directors
The Directors of the Company who held office throughout the period are set out below:
Gavin Peck (CEO)
Harry Morley (Senior Independent Director)
Catherine Glickman (Non-Executive Director)
During FY22 the following changes to the Directors of the Company occurred: on 30 September 2021, Carolyn Bradley was appointed
a Director and became Chair of the Board; Steve Alldridge, having been appointed as permanent CFO, was appointed as a Director
of the Company, with effect from 14 May 2021; Dean Hoyle retired as a Director on 30 September 2021.
Summaries of the current Directors’ key skills and experience are included on pages 48 and 49.
Results and dividend
The results for the year are set out in the consolidated income statement on page 92. The Directors are proposing a final dividend
for the year ended 1 May 2022 of 2.4 pence per share payable on 24 November 2022, to shareholders on the register on 4 November 2022.
Articles of Association
The rules governing the appointment and replacement of Directors are set out in the Company’s Articles. The Articles may be amended
by a special resolution of the Company’s shareholders. The Articles also set out in full the powers of the Directors in relation to issuing
shares and buying back the Company’s own shares.
Share capital
Details of the Company’s share capital, including changes during the year, are set out in Note 24 to the financial statements. As at 1 May
2022, the Company’s issued share capital consisted of 62,500,000 ordinary shares of 1 pence each. There have been no changes to the
Company’s issued share capital since the financial period end.
Ordinary shareholders are entitled to receive notice of, and to attend and speak at, any general meeting of the Company. On a show
of hands every shareholder present in person or by proxy (or being a corporation represented by a duly authorised representative) shall
have one vote, and on a poll every shareholder who is present in person or by proxy shall have one vote for every share of which he is the
holder. The Notice of AGM specifies deadlines for exercising voting rights and appointing a proxy or proxies.
Other than the general provisions of the Articles (and prevailing legislation) there are no specific restrictions of the size of a holding
or on the transfer of the ordinary shares.
The Directors are not aware of any agreements between holders of the Company’s shares that may result in the restriction of the transfer
of securities or on voting rights. No shareholder holds securities carrying any special rights or control over the Company’s share capital.
Directors’ report
TheWorks.co.uk plc Annual Report and Accounts 2022 81
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Authority for the Company to purchase its own shares
Subject to authorisation by shareholder resolution, the Company may purchase its own shares in accordance with the Act. Any shares
which have been bought back may be held as treasury shares or cancelled immediately upon completion of the purchase.
At the Company’s AGM held on 30 September 2021, the Company was generally and unconditionally authorised by its shareholders
to make market purchases (within the meaning of Section 693 of the Companies Act 2006) purchase up to a maximum of 6,250,000 of
its ordinary shares. The Company has not repurchased any of its ordinary shares under this authority, which is due to expire at the AGM
to be held on 27 October 2022, and accordingly has an unexpired authority to purchase up to 6,250,000 ordinary shares with a nominal
value of £62,500.00. A resolution to renew the authority for a further year will be proposed at the 2022 AGM.
Directors’ interests
The number of ordinary shares of the Company in which the Directors were beneficially interested as at 1 May 2022 is set out in the
Directors’ remuneration report on page 76.
Directors’ indemnities
The Company’s Articles provide, subject to the provisions of UK legislation, an indemnity for Directors and Officers of the Company and
the Group in respect of liabilities they may incur in the discharge of their duties or in the exercise of their powers.
Directors’ and Officers’ liability insurance cover is maintained by the Company and is in place in respect of all the Company’s Directors
at the date of this report. The Company reviews its level of cover on an annual basis.
Compensation for loss of office
The Company does not have any agreements with any Executive Director or employee that would provide compensation for loss of office
or employment resulting from a takeover except that provisions of the Company’s LTIP and other share schemes may cause options
and awards outstanding under such schemes to vest on a takeover. Further information is provided in the Directors’ remuneration report
on page 63.
Significant interests
The table below shows the interests in shares notified to the Company in accordance with the Disclosure Guidance and Transparency
Rules as at 1 May 2022, and 13 September 2022 (being the latest practicable date prior to publication of this Annual Report):
As at 1 May 2022 As at 14 September 2022
Name of shareholder
Number of ordinary shares
of 1 pence each held
Percentage of
total voting rights held
Number of ordinary shares
of 1 pence each held
Percentage of
total voting rights held
Schroders plc 12,043,141 19.27% 12,043,141 19.27%
Dean Hoyle
(including interest of Janet Hoyle) 10,329,378 16.53% 10,329,378 16.53%
Jupiter Fund Management plc 6,467,667 10.34% 5,317,667 8.50%
Standard Life Aberdeen plc 3,109,275 4.97% 3,109,275 4.97%
BennBridge Limited 3,054,597 4.89% 3,054,597 4.89%
Canaccord Genuity Group Inc. — — 3,000,000 4.80%
Downing Strategic Micro-Cap
Investment Trust — — 1,950,000 3.12%
Graeme Coulthard — — 1,910,247 3.06%
Branches outside the UK
Other than ten stores located in the Republic of Ireland, the Company has no branches outside the UK.
Employee involvement
Information relating to employees of the Group and how the Company engages with its workforce can be found on pages 24 and 25.
Disabled employees
It is the policy of the Group to provide equal recruitment and other opportunities for all colleagues regardless of sex, age, religion,
race, disability or sexual orientation. The Group gives full consideration to applications for employment from disabled people, where
they adequately fulfil the requirements of the job. Once employed by the Group, we ensure that disabled colleagues have full access
to training and career development opportunities. Where colleagues become disabled, it is the Group’s policy to provide continuing
employment and retraining where practicable.
Political donations
The Company did not make any political donations during the year.
Directors’ report continued
TheWorks.co.uk plc Annual Report and Accounts 202282
Change of control – significant agreements
There are a number of agreements that may take effect after, or terminate upon, a change of control of the Company, such as commercial
contracts, bank loan agreements and property lease arrangements.
The only significant agreement to which the Company is a party that takes effect, alters or terminates upon a change of control of the
Company following a takeover bid, and the effect thereof, is the Company’s committed bank facility dated 10 June 2022 which contains
a provision such that, in the event of a change of control, the facility may be cancelled and all outstanding amounts, together with
accrued interest, will become repayable on the date falling 30 days following written notice being given by the lenders that the facility
has been cancelled.
Audit information
Each of the Directors at the date of the approval of this report confirms that:
•
so far as the Director is aware, there is no relevant audit information of which the Company’s auditor are unaware; and
•
the Director has taken all the reasonable steps that he/she ought to have taken as a Director to make himself/herself aware of any
relevant audit information and to establish that the Company’s auditor are aware of the information.
The confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.
Auditor
KPMG LLP have indicated its willingness to continue in office and a resolution seeking to reappoint them will be proposed at the
forthcoming AGM.
Annual General Meeting
The AGM will be held on 27 October 2022. The Notice of AGM is contained in a separate letter from the Chair accompanying this report.
Post-balance sheet events
Other than as disclosed in the Strategic report, there have been no material post-balance sheet events involving the Company or any of
the Company’s subsidiaries as at the date of this report.
The Strategic report on pages 1 to 46 and this Directors’ report have been drawn up and presented in accordance with, and in reliance
upon, applicable English company law and any liability of the Directors in connection with these reports shall be subject to the limitations
and restrictions provided by such law.
By order of the Board
Gavin Peck
Chief Executive Officer
23 September 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 83
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance
with applicable law and regulations. The Company is required to include these financial statements in an annual financial report
prepared using the single electronic reporting format specified in the TD ESEF Regulation.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law,
they are required to prepare the Group financial statements in accordance with International Accounting Standards in conformity with the
requirements of UK adopted International Accounting Standards and applicable law and have elected to prepare the Parent Company
financial statements in accordance with accounting standards including FRS 101 Reduced Disclosure Framework.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group
and Parent Company financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
•
make judgements and estimates that are reasonable, relevant, reliable and prudent;
•
for the Group annual statements, state whether they have been prepared in accordance with International Accounting Standards in
conformity with the requirements of UK adopted International Accounting Standards;
•
for the Parent Company annual statements, state whether appropriate UK accounting standards have been followed, subject
to any material departures disclosed and explained in the Parent Company annual statements;
•
assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
•
use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and that enable them to
ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors’ report, Directors’
remuneration report and Corporate governance report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a
whole; and
•
the Strategic report includes a fair review of the development and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that
they face.
We consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance, business model and strategy.
By order of the Board
Gavin Peck
Chief Executive Officer
23 September 2022
Statement of Directors’ responsibilities
TheWorks.co.uk plc Annual Report and Accounts 202284
1. Our opinion is unmodified
We have audited the financial statements of TheWorks.co.uk plc
(“the Company”) for the 52 week period ended 1 May 2022 which
comprise the Consolidated income statement, Consolidated
statement of comprehensive income, Consolidated statement of
financial position, Consolidated statement of changes in equity,
Consolidated cash flow statement, Company statement of
financial position and Company statement of changes in equity
and the related notes, including the accounting policies in note 1.
In our opinion:
•
the financial statements give a true and fair view of the state
of the Group’s and of the parent Company’s affairs as at 1 May
2022 and of the Group’s profit for the 52 week period then ended;
•
the Group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of UK-adopted international
accounting standards;
•
the parent Company financial statements have been properly
prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework; and
•
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis
for our opinion. Our audit opinion is consistent with our report to the
audit committee.
We were first appointed as auditor by the directors on 11 July 2018.
The period of total uninterrupted engagement is for the 4
financial years ended 1 May 2022. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
group financial
statements as a whole
£750k (2021:£500k)
0.29% (2021: 0.28%) of revenue
Coverage 100% (2021: 100%) of revenue
Key audit matters 2022 vs 2021
Recurring risks Existence of inventory
held in stores
Going concern
Carrying amount of
Parent Company
investment in subsidiaries
Independent auditor’s report
To the Members of TheWorks.co.uk plc
TheWorks.co.uk plc Annual Report and Accounts 2022 85
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Independent auditor’s report continued
To the Members of TheWorks.co.uk plc
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion
above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the
purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that
opinion, and we do not provide a separate opinion on these matters.
The UK government COVID trading restrictions imposed on non-essential retailers in FY21 was regarded as an impairment trigger for all
stores and in these circumstances we determined that the carrying value of stores had a high degree of estimation uncertainty, albeit
lower than in FY20 due to the success of the government’s vaccination programme. The COVID trading restrictions also interrupted the
company’s normal process for selling through terminal stock and in these circumstances we determined that there was a high degree
of estimation uncertainty associated with the NRV provision. These restrictions no longer apply and, accordingly, we no longer consider
these two matters to be a key audit matters.
The risk Our response
Existence
of inventory
held in stores
£20.4 million;
2021: £21.2 million
Refer to page 54
(Audit Committee
Report), page
97 (accounting
policy) and page
115 (financial
disclosures).
Subjective estimation
Inventory is a significant balance. It is held in stores, at
the Company warehouse and at a third party logistics
provider. The risks described below relate to inventory
held at the stores.
It is usual in a retail environment for differences to arise
between the inventory records and physical quantities
for a variety of reasons, including theft and other losses,
often referred to as shrinkage.
The existence and completeness of inventory and the
extent of any shrinkage is assessed by management
through sample inventory counts at every store
throughout the year (“tactical counts”) and full wall-to-
wall at a number of stores (“4-wall counts”) (together
“management’s count processes”). The inventory records
are adjusted to reflect results of management’s count
processes. A shrinkage provision is established to cater
for an estimate of the losses incurred between the count
dates and the year end.
Management’s count processes in the stores during FY22
was disrupted by a cyber incident in March. As a result,
management has not been able to conduct as many
4 wall counts as planned to confirm the existence and
completeness of store inventory during the course of
the year. Therefore, management has conducted 4-wall
counts at a sample of stores and has estimated the level
of shrinkage on this basis. It is possible that the results
of the sample selected may not be representative of the
population as a whole.
The effect of these matters is that, as part of our risk
assessment, we determined that the provision for
shrinkage has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a
whole. The financial statements (note 17) disclose the
sensitivity estimated by the group.
Our procedures included:
•
Tests of detail: We counted 1,485 lines items at
30 stores and compared our count results with
the company inventory records;
•
Assessing methodology: We assessed the
methodology used by the group to calculate the
shrinkage provision;
•
Independent reperformance: We performed
our own evaluation of the projected shrinkage
based on our count results, which we compared
to management’s estimate; and
•
Assessing transparency: We assessed the
adequacy of the group’s disclosures about the
degree of estimation involved in arriving at the
shrinkage provision.
We performed the detailed tests above rather
than seeking to rely on any of the group’s controls
because our knowledge of the design of these
controls indicated that we would not be able to
obtain the required evidence to support reliance
on controls.
Our results
We found the provision for existence of inventory
held in the stores to be acceptable (2021: acceptable).
TheWorks.co.uk plc Annual Report and Accounts 202286
The risk Our response
Going concern
Refer to page 54
(Audit Committee
Report), page 97
(accounting policy).
Disclosure quality
The financial statements explain how the Board has
formed a judgement that it is appropriate to adopt the
going concern basis of preparation for the Group and
parent Company.
That judgement is based on an evaluation of the inherent
risks to the Group’s and Company’s business model and
how those risks might affect the Group’s and Company’s
financial resources or ability to continue operations over
a period of at least a year from the date of approval of
the financial statements.
The risks most likely to adversely affect the Group’s
and Company’s available financial resources and
metrics relevant to debt covenants over this period
were those associated with the revenues forecasts and
how thy might be impacted by the effect of inflation on
disposable incomes and consumer demand.
The risk for our audit was whether or not those risks
were such that they amounted to a material uncertainty
that may have cast significant doubt about the ability
to continue as a going concern. Had they been
such, then that fact would have been required to
have been disclosed.
We considered whether these risks could plausibly
affect the liquidity or covenant compliance in the
going concern period by assessing the directors’
sensitivities over the level of available financial
resources and covenant thresholds indicated by the
Group’s financial forecasts taking account of severe,
but plausible, adverse effects that could arise from
these risks individually and collectively.
Our procedures included:
•
Funding assessment: Considering the availability
and sufficiency of the financing arrangements
in place at the Group, including the headroom
on financial covenants in place on the Group’s
renewed revolving credit facility;
•
Sensitivity analysis: Challenging the stress testing
performed by the Directors considering the severe
but plausible scenarios that could arise;
•
Historical comparisons: Assessing historical
forecasting accuracy, by comparing previous
forecast results to those actually achieved by
the Group;
•
Assessing assumptions: Assessing the key
assumptions (including growth rates in turnover
and margin expectations) as included in the
directors’ business plans and approved at
the period-end date by considering historic
store performance, recent trading and sector
knowledge to set our own expectations;
•
Evaluating directors’ intent: Evaluating the
achievability of the actions the directors consider
they would take to improve the position should the
risks materialise, taking into account the extent
to which the directors can control the timing and
outcome of these;
•
Comparing assumptions: Considering whether
the forecasts and assumptions used by the
Directors are consistent with other forecasts used
by the Group (including those used to assess
recoverability of Parent Company investments in
subsidiaries and recoverability of store assets);
•
Conducting sensitivity analysis: We considered
the directors’ downside scenario, including
performing our own sensitivity analysis and
comparing that to management’s and, as a result,
required management to consider a more severe
downside in more detail; and
•
Assessing transparency: Considering whether the
going concern disclosure in the basis of preparation
of the accounts gives a full and accurate
description of the Directors’ assessment of
going concern, including the identified risks and
corresponding assumptions.
Our results
We found the going concern disclosures in the basis
of preparation of the accounts without any material
uncertainty to be acceptable (2021: acceptable).
2. Key audit matters: our assessment of risks of material misstatement continued
TheWorks.co.uk plc Annual Report and Accounts 2022 87
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Independent auditor’s report continued
To the Members of TheWorks.co.uk plc
The risk Our response
Carrying
amount
of Parent
Company
investment in
subsidiaries
£57.3 million
(2021: 57.3 million)
Refer to page 54
(Audit Committee
Report), page 97
(accounting policy)
and page 129
(financial
disclosures).
Forecast-based assessment
The carrying amount of the Parent Company’s
investments in subsidiaries represents 100% (2021: 80.1%)
of the Parent Company’s total assets. The net assets
of the subsidiaries are less than the carrying amount
of the Parent Company’s investment which is therefore
assessed with reference to their discounted forecast
future cash flows. This is inherently judgemental due to
the subjectivity and uncertainty involved in selecting
the appropriate key assumptions and preparing future
discounted cash flows.
The effect of these matters is that, as part of our risk
assessment, we determined that the carrying value of the
parent company’s investment in subsidiaries has a high
degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality
for the financial statements as a whole. The financial
statements (Note 33) disclose the sensitivity estimated by
the Company.
Our procedures included:
Our sector experience: We used our sector
knowledge and understanding of the business
and considered whether or not they had been
appropriately captured in the impairment models;
Our valuation expertise: We used our experience
to assist us in assessing appropriateness of the
methodology and assumptions. In addition we
performed an independent calculation of the
discount rate based on market data to assist us in
assessing the discount rate assumptions used by
the Group;
Assessing assumptions: Assessing the key
assumptions (including growth rates in turnover and
margin expectations) as included in the directors’
business plans and approved at the period-end date
by considering historic performance and industry
forecasts to set our own expectations;
Sensitivity analysis: We applied sensitivities to
key assumptions to assess their impact on the
recoverability of the assets;
Historical comparison: We evaluated the historical
accuracy of the Group’s forecasts by comparing
previous budget to actual results;
Comparing valuations: We compared the results of
discounted cash flows against the Group’s market
capitalisation, after adjusting for intercompany
debt to assess the reasonableness of those cash
flows; and
Assessing transparency: We also considered the
adequacy of the Group’s disclosure of the key risks
and sensitivity around the outcome, and whether
that disclosure reflected the risks inherent in the
valuation of investments in subsidiaries.
We performed the tests above rather than seeking
to rely on any of the Group’s controls because the
nature of the balance is such that we would expect
to obtain audit evidence primarily through the
detailed procedures described.
Our results
The results of our testing were satisfactory and we
found the impairment recorded and the resulting
carrying value of the investment in subsidiaries to
be acceptable (2021: acceptable).
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £750k (2021: £500k), determined with reference to a benchmark of
revenue of £265m (2021: £181m) of which it represents 0.28% (2021: 0.28%). We consider total revenue to be the most appropriate benchmark
as it provides a more stable measure year on year than group profit before tax.
Materiality for the parent Company financial statements as a whole was set at £600k (2021: £400k), This is lower than the materiality we
would otherwise have determined with reference to a benchmark of Company net assets, of which it represents 80% (2021: 80%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account
balances add up to a material amount across the financial statements as a whole.
Performance materiality was set at 65% (2021: 75%) of materiality for the financial statements as a whole, which equates to £487.5k (2021:
£375k). We applied this percentage in our determination of performance materiality based on the level of identified misstatements and
control deficiencies in the control environment during the prior period.
2. Key audit matters: our assessment of risks of material misstatement continued
TheWorks.co.uk plc Annual Report and Accounts 202288
3. Our application of materiality and an overview of the
scope of our audit continued
Performance materiality for the parent Company was set at 75%
(2021: 75%) which equates to £450k (2021: £300k). We applied
this percentage in our determination of performance materiality
because we did not identify any factors indicating an elevated
level of risk.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £37.5k (2021: £25k),
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
The scope of the audit work performed was predominantly substantive
as we placed limited reliance upon the Group’s internal control over
financial reporting.
As disclosed on page 8, the company experienced a cyber security
incident involving unauthorised access to its computer systems
which temporarily affected till systems, replenishment deliveries
to stores and delayed the fulfilment of online orders. With support
from our cyber security specialists, we considered management’s
response to this incident and assessed the risks of misstatement
that it gave rise to and determined that the impact on the audit
approach was limited given its substantive nature.
The Group team performed the audit of the Group as if it was
a single aggregated set of financial information. The audit was
performed using the materiality and performance materiality levels
set out above.
4. Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Group
or the Company or to cease their operations, and as they have
concluded that the Group’s and the Company’s financial position
means that this is realistic. They have also concluded that there are
no material uncertainties that could have cast significant doubt
over their ability to continue as a going concern for at least a year
from the date of approval of the financial statements (“the going
concern period”).
An explanation of how we evaluated management’s assessment of
going concern is set out in the related key audit matter in section 2
of this report.
Our conclusions based on this work:
•
we consider that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements
is appropriate;
•
we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty related to
events or conditions that, individually or collectively, may cast
significant doubt on the Group’s or Company’s ability to continue
as a going concern for the going concern period;
•
we have nothing material to add or draw attention to in relation
to the directors’ statement in note 1 to the financial statements
on the use of the going concern basis of accounting with no
material uncertainties that may cast significant doubt over the
Group and Company’s use of that basis for the going concern
period, and we found the going concern disclosure in note 1 to be
acceptable; and
•
the related statement under the Listing Rules set out on page
81 is materially consistent with the financial statements and our
audit knowledge.
However, as we cannot predict all future events or conditions and
as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the above conclusions are not a guarantee that the Group or the
Company will continue in operation.
9595++55++II
Revenue
Group materiality
Full scope for group audit purposes 2022
Full scope for group audit purposes 2021
Benchmark – Revenue
£265m (2021: £180m)
Group revenue
Group total assets
Group profit before tax
Group materiality
£750k (2021: £500k)
£750k
Whole financial statements
materiality (2021: £500k)
£487.5k
Whole financial statements
performance materiality
(2021: £375k)
£37.5k
Misstatements reported
to the audit committee
(2021: £25k)
100100++II
100+100+++II
100%
(2021: 100%)
100100++II
100+100+++II
100%
(2021: 100%)
100100++II
100+100+++II
100%
(2021: 100%)
TheWorks.co.uk plc Annual Report and Accounts 2022 89
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Independent auditor’s report continued
To the Members of TheWorks.co.uk plc
5. Fraud and breaches of laws and regulations –
ability to detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”)
we assessed events or conditions that could indicate an incentive
or pressure to commit fraud or provide an opportunity to commit
fraud. Our risk assessment procedures included:
•
Enquiring of directors and inspection of policy documentation as
to the Group’s high-level policies and procedures to prevent and
detect fraud, including the Group’s channel for “whistleblowing”,
as well as whether they have knowledge of any actual,
suspected or alleged fraud;
•
Reading Board, audit committee, and remuneration committee
meeting minutes;
•
Considering remuneration incentive schemes and performance
targets for directors and how these are impacted by separately
disclosed items; and
•
Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit.
As required by auditing standards, and taking into account
possible pressures to meet profit targets, we perform procedures to
address the risk of management override of controls, in particular
the risk that Group management may be in a position to make
inappropriate accounting entries.
On this audit we do not believe there is a fraud risk related to
revenue recognition due to the simple recognition criteria the
majority of revenue streams, which are recognised at the point of
sale and the limited opportunity for management to manipulate
the revenue recognised.
We did not identify any additional fraud risks.
We performed procedures including:
•
Identifying journal entries and other adjustments to test based
on risk criteria and comparing the identified entries to supporting
documentation. These included: unusual revenue pairings and
unusual journals with a credit or debit entry to cash.
•
Assessing whether the judgements made in making accounting
estimates are indicative of a potential bias.
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience and through
discussion with the directors and other management (as required
by auditing standards) and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit. The potential effect of these laws and
regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation and taxation legislation and we assessed the
extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements,
for instance through the imposition of fines or litigation. We
identified the following areas as those most likely to have such
an effect: health and safety, data protection laws, anti-bribery
and employment law. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of the directors and other management
and inspection of regulatory and legal correspondence, if any.
Therefore if a breach of operational regulations is not disclosed
to us or evident from relevant correspondence, an audit will not
detect that breach.
Context of the ability of the audit to detect fraud or breaches of
law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
6. We have nothing to report on the other information
in the Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with
the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the
other information.
Strategic report and directors’ report
Based solely on our work on the other information:
•
we have not identified material misstatements in the strategic
report and the directors’ report;
•
in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
•
in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
TheWorks.co.uk plc Annual Report and Accounts 202290
6. We have nothing to report on the other information
in the Annual Report continued
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or
draw attention to in relation to:
•
the directors’ confirmation within the Viability statement page 45
that they have carried out a robust assessment of the emerging and
principal risks facing the Group, including those that would threaten
its business model, future performance, solvency and liquidity;
•
The Principal risks and uncertainties disclosures describing these
risks and how emerging risks are identified, and explaining how
they are being managed and mitigated; and
•
the directors’ explanation in the Viability statement of how they
have assessed the prospects of the Group, over what period
they have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the Viability statement, set out on
page 45 under the Listing Rules. Based on the above procedures,
we have concluded that the above disclosures are materially
consistent with the financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our
audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and
our audit knowledge:
•
the directors’ statement that they consider that the annual
report and financial statements taken as a whole is fair,
balanced and understandable, and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy;
•
the section of the annual report describing the work of the
Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements,
and how these issues were addressed; and
•
the section of the annual report that describes the review of
the effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance
Statement relating to the Group’s compliance with the provisions of
the UK Corporate Governance Code specified by the Listing Rules
for our review. We have nothing to report in this respect.
7. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
•
adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law
are not made; or
•
we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 84,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group
and parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements
in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This auditor’s
report provides no assurance over whether the annual financial
report has been prepared in accordance with that format.
9. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members,
as a body, for our audit work, for this report, or for the opinions we
have formed.
Anthony Sykes
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London, E14 5GL
23 September 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 91
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
52 weeks to 1 May 2022 53 weeks to 2 May 2021 (Restated – Note 5, Note 7)
Note
Result before
Adjusting items
£000
Adjusting
items
£000
Total
£000
Result before
Adjusting items
£000
Adjusting
items
£000
Total
£000
Revenue 3 264,630 — 264,630 180,680 — 180,680
Cost of sales (216,082 ) 29 (216,053 ) (170,342 ) 975 (169,367 )
Gross profit 48,548 29 48,577 10,338 975 11,313
Other operating income 4 (111 ) — (111 ) 17,081 — 17,081
Distribution expenses (9,128 ) — (9,128 ) (6,440 ) — (6,440 )
Administrative expenses (24,004 ) — (24,004 ) (19,088 ) (199 ) (19,287 )
Operating profit 7 15,305 29 15,334 1,891 776 2,667
Finance income 16 — 16 18 — 18
Finance expenses (5,192 ) — (5,192 ) (5,486 ) — (5,486 )
Net financing expense 9 (5,176 ) — (5,176 ) (5,468 ) — (5,468 )
Profit/(loss) before tax 10,129 29 10,158 (3,577 ) 776 (2,801 )
Taxation 10 (1,436 ) — (1,436 ) 502 — 502
Profit/(loss) for the period 8,693 29 8,722 (3,075 ) 776 (2,299 )
Profit/(loss) before tax and IFRS 16 5 9,525 (241 ) 9,284 (3,395 ) (94 ) (3,489 )
Basic earnings per share (pence) 12 13.9 14.0 (4.9 ) (3.7 )
Diluted earnings per share (pence) 12 13.7 13.7 (4.9 ) (3.7 )
Profit for the period is attributable to equity holders of the Parent.
Consolidated income statement
For the period ended 1 May 2022
TheWorks.co.uk plc Annual Report and Accounts 202292
FY22
£000
FY21
£000
Profit/(loss) for the year 8,722 (2,299 )
Items that may be recycled subsequently into profit and loss
Cash flow hedges – changes in fair value 4,181 (2,865 )
Cash flow hedges – reclassified to profit and loss (321 ) 252
Cost of hedging reserve – changes in fair value (83 ) (90 )
Cost of hedging reserve – reclassified to profit and loss 94 (160 )
Tax relating to components of other comprehensive income — 536
Other comprehensive income/(expense) for the period, net of income tax 3,871 (2,327 )
Total comprehensive income/(expense) for the period attributable to equity shareholders of the Parent 12,593 (4,626 )
Consolidated statement of comprehensive income
For the period ended 1 May 2022
TheWorks.co.uk plc Annual Report and Accounts 2022 93
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Note
FY22
£000
FY21
(Restated
– Note 14)
£000
Non-current assets
Intangible assets 13 2,672 2,463
Property, plant and equipment 14 13,970 17,524
Right-of-use assets 14, 15 94,351 112,542
Deferred tax assets 16 3,477 2,852
Current assets
Inventories 17 29,387 29,132
Trade and other receivables 18 8,427 6,913
Derivative financial asset 25 2,393 —
Current tax asset — 704
Cash and cash equivalents 19 16,280 8,315
Total assets 170,957 180,445
Current liabilities
Interest-bearing loans and borrowings 20 — 7,095
Lease liabilities 15, 20 25,434 31,552
Trade and other payables 21 35,958 26,188
Provisions 22 204 718
Derivative financial liability 25 — 1,649
Current tax liability 1,115 —
Non-current liabilities
Lease liabilities 15, 20 85,702 104,362
Provisions 22 913 —
Derivative financial liability 25 — 53
Total liabilities 149,326 171,617
Net assets 21,631 8,828
Equity attributable to equity holders of the Parent
Share capital 24 625 625
Share premium 24 28,322 28,322
Merger reserve (54 ) (54 )
Share-based payment reserve 2,252 1,601
Hedging reserve 2,227 (1,203 )
Retained earnings (11,741 ) (20,463 )
Total equity 21,631 8,828
These financial statements were approved by the Board of Directors on 23 September 2022 and were signed on its behalf by:
Steve Alldridge
Chief Financial Officer
Company registered number: 11325534
Consolidated statement of financial position
As at 1 May 2022
TheWorks.co.uk plc Annual Report and Accounts 202294
Attributable to equity holders of the Company
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Share-based
payment
reserve
£000
Hedging
reserve
1
£000
Retained
earnings
£000
Total
equity
£000
Balance at 26 April 2020 625 28,322 (54 ) 1,506 1,171 (18,16 4 ) 13,406
Total comprehensive income for the period
Loss for the period — — — — — (2,299 ) (2,299 )
Other comprehensive income/(expense) — — — 14 (2,341 ) — (2,327 )
Total comprehensive income/(expense) for the period — — — 14 (2,341 ) (2,299 ) (4,626 )
Hedging gains and losses and costs of hedging
transferred to the cost of inventory (Note 25) — — — — (33 ) — (33 )
Transactions with owners of the Company
Share-based payment charges — — — 81 — — 81
Total transactions with owners — — — 81 — — 81
Balance at 2 May 2021 625 28,322 (54 ) 1,60 1 (1,203 ) (20,463 ) 8,828
Total comprehensive income for the period
Profit for the period — — — — — 8,722 8,722
Other comprehensive income — — — — 3, 87 1 — 3, 871
Total comprehensive income for the period — — — — 3, 871 8,722 12,59 3
Hedging gains and losses and costs of hedging
transferred to the cost of inventory (Note 25) — — — — (441 ) — (441 )
Transactions with owners of the Company
Share-based payment charges — — — 651 — — 651
Total transactions with owners — — — 651 — — 651
Balance at 1 May 2022 625 28,322 (54 ) 2 ,252 2,22 7 (11,7 41 ) 21,631
1 Hedging reserve includes £175,956 (FY21: £155,124 ) in relation to changes in forward points which are recognised in other comprehensive income and
accumulated as a cost of hedging within the hedging reserve.
Consolidated statement of changes in equity
TheWorks.co.uk plc Annual Report and Accounts 2022 95
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
FY22
£000
FY21
(Restated
– Note 14)
£000
Profit/(loss) for the year (including Adjusting items) 8,722 (2,299 )
Adjustments for:
Depreciation of property, plant and equipment 5,005 5,187
Impairment of property, plant and equipment 416 957
Reversal of impairment of property, plant and equipment (175 ) (1,000 )
Depreciation of right-of-use assets 20,029 23,311
Impairment of right-of-use assets 710 4
Reversal of impairment of right-of-use assets (980 ) (874 )
Amortisation of intangible assets 806 947
Derivative exchange gain 289 (444 )
Financial income (16 ) (18 )
Financial expense 692 617
Interest on lease liabilities 4,500 4,869
Loss on disposal of property, plant and equipment 244 262
Loss on disposal of right-of-use assets 2,066 373
Profit on disposal of lease liability (2,340 ) (464 )
Loss on disposal of intangible assets — 311
Share-based payment charges 651 81
Taxation 1,436 (502 )
Operating cash flows before changes in working capital 42,055 31,318
(Increase)/decrease in trade and other receivables (1,514 ) 1,217
Increase in inventories (892 ) (2,284 )
Increase in trade and other payables 9,336 167
Increase/(decrease) in provisions 399 (261 )
Cash flows from operating activities 49,384 30,157
Corporation tax paid (222 ) (30 )
Net cash inflow from operating activities 49,162 30,127
Cash flows from investing activities
Acquisition of property, plant and equipment (1,936 ) (1,869 )
Acquisition of intangible assets (1,015 ) (526 )
Interest received 16 18
Net cash outflow from investing activities (2,935 ) (2,377 )
Cash flows from financing activities
Payment of lease liabilities (capital) (25,969 ) (14,327 )
Payment of lease liabilities (interest) (4,500 ) (4,869 )
Payment of RCF fees — (619 )
Other interest paid (157 ) (279 )
Repayment of bank borrowings (7,500 ) (10,000 )
Issue of bank loan — 7,500
Net cash outflow from financing activities (38,126 ) (22,594 )
Net increase in cash and cash equivalents 8,101 5,156
Exchange rate movements (136 ) 218
Cash and cash equivalents at beginning of year 8,315 2,941
Cash and cash equivalents at end of year 16,280 8,315
Consolidated cash flow statement
For the period ended 1 May 2022
TheWorks.co.uk plc Annual Report and Accounts 202296
1. Accounting policies
Where accounting policies are particular to an individual note, narrative regarding the policy is included with the relevant note;
for example, the accounting policy in relation to inventory is detailed in Note 17 (Inventories).
(a) General information
These consolidated financial statements for the 52 weeks ended 1 May 2022 (FY22 or the ‘Period’) comprise the results of the Company
and its subsidiaries (together referred to as the ‘Group’), and are presented in pounds sterling. All values are rounded to the nearest
thousand (£000), except when otherwise indicated.
(b) Basis of preparation
The financial statements have been prepared in accordance with UK-adopted international accounting standards.
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect
the application of policies, and the reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience, future budgets and forecasts, and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods. The Group’s significant judgements and estimates relate to going concern and the inventory shrinkage
provision; these are described in Note 1(f).
(i) Going concern
The financial statements have been prepared on a going concern basis, which the Directors consider appropriate for the reasons
set out below.
The Directors have assessed the prospects of the Group, taking into account its current position and the potential impact of the principal
risks documented in the Strategic report on pages 39 to 44.
The Group has prepared cash flow forecasts for a period of at least twelve months from the date of approval of these financial
statements, based on the Board’s forecast for FY23 and its 3 Year Plan, referred to as the ‘Base Case’ scenario. In addition, a ‘severe but
plausible’ ‘Downside Case’ sensitivity has been prepared to support the Board’s conclusion regarding going concern, by stress testing the
Base Case to indicate the financial headroom resulting from applying more pessimistic assumptions.
In assessing the basis of preparation the Directors have considered:
•
the external environment;
•
the Group’s financial position including the quantum and expectations regarding availability of bank facilities;
•
the potential impact on financial performance of the risks described in the Strategic report;
•
the output of the Base Case scenario, which represents the Group’s estimate of the most likely financial performance over the
forecast period;
•
measures to maintain or increase liquidity in the event of a significant downturn in trading;
•
the resilience of the Group to these risks having a more severe impact, evaluated via the Downside Case which shows the impact on the
Group’s cash flows, bank facility headroom and covenants; and
•
the response to situations in which consumer market conditions are even more severe than the Downside Case.
These factors are described below.
External environment
The risks which were most prominent in the Board’s consideration of going concern are those relating to the economy and the market,
with the nature of these risks having altered significantly since last year’s Annual Report. COVID-19 was the dominant factor in making this
judgement in relation to the financial statements for FY20 and FY21, but the Board’s assessment is that there is now only a residual risk
associated with this. Instead, the risk of weaker consumer demand is now considered to be the greatest risk, due to the factors that have
been widely reported externally in recent months, including a much higher level of inflation and concerns about its effect on household
budgets and consumer spending on discretionary items.
The potential adverse impact on trading in the event of a further weakening of consumer demand due to general economic or market
weakness is considered to be of a smaller magnitude than the impact of the full national lockdowns which were experienced during
periods of the COVID-19 pandemic.
Risks relating to Brexit are not considered significant for the Group and therefore are not expected to have any bearing on the basis
of preparation of the financial statements.
Notes to the consolidated financial statements
(Forming part of the financial statements)
TheWorks.co.uk plc Annual Report and Accounts 2022 97
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
1. Accounting policies continued
(b) Basis of preparation continued
(i) Going concern continued
Financial position and bank facilities
The cash and borrowings of the Group at the period end are shown in the financial statement Notes 19 (Cash and cash equivalents)
and 20 (Borrowings). In addition, Note 25 (Financial instruments) describes the Group’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit
risk and liquidity risk.
At 1 May 2022 the Group held net cash (excluding lease liabilities) of £16.3m (FY21: net cash (excluding lease liabilities) of £0.8m).
The Group’s bank facilities were renewed in June 2022, and now comprise a larger revolving credit facility (RCF), increased to £30.0m
which terminates at the end of November 2025. The facility includes two financial covenants which are structured in a way that is typical
for a retail business of this size. The covenants are tested quarterly:
1. the level of net debt to LTM (last twelve months’ rolling) EBITDA (maximum ratio 2.5x).
2. the ‘Fixed Charge Cover’ or ratio of LTM EBITDA prior to deducting rent and interest, to LTM rent and interest (minimum ratio 1.20x
until 31 October 2023, 1.25x until 31 October 2024 and 1.30x thereafter).
The bank facility is larger than the Group expects to use, and has been sized in this way to provide the Board and stakeholders with
additional assurance as to the availability of liquidity, given the current heightened levels of uncertainty as regards the economy and
external environment, and to provide such assurance beyond the going concern period.
Potential impact of risks on Base Case and Downside Case scenarios
The ‘Principal risks and uncertainties’ section of the Strategic report, on pages 39 to 44, sets out the main risks that the Board considers
could threaten the Group’s business model, future performance, solvency or liquidity.
It is considered unlikely that all the risks would manifest themselves to adversely affect the business at the same time. The Directors have
estimated what the most likely combination of risks might be that could materialise within the going concern assessment period and how
the business might be affected; this combination of risks is reflected in the Base Case assumptions. As noted above, the most prominent
risk in the near term is considered to be the risk of lower consumer spending due to a weakened economy, which could affect sales, costs
and liquidity.
During FY22 the Group experienced a cyber security incident. This had a limited immediate/direct impact on trading towards the end of
FY22 and there was a residual effect on trading during early FY23 as the Group took the decision to implement a very cautious and low
risk approach to reinstating its systems, whilst simultaneously introducing significantly strengthened cyber security measures. As a result
of these measures the Board considers that the risk of a material impact from any future cyber security attack is lessened.
The Downside Case scenario takes into consideration the same risks as the Base Case but assumes that their effects are more severe,
especially the level of disruption that could be experienced if consumer spending weakens significantly from its already reduced level,
during the coming peak trading season.
Base Case scenario
The Base Case scenario assumptions are aligned with the Group’s internal forecast:
•
during FY22 sales were adversely impacted during the peak trading season by significant disruptions to the flow of stock into the
business due to problems in the ocean freight system and store sales were also affected by the Omicron COVID-19 variant. The Base
Case assumes that sales are not affected by these factors during the going concern period;
•
online sales levels during the early part of FY23 have been lower than expected. The Base Case assumes that online sales improve
from their recent levels but not to the level initially expected, despite the fact that the Group plans to implement measures to improve
online sales;
•
the gross margin assumptions include provision for the continuation for a longer period than initially expected of higher than normal
ocean container freight costs, until the end of FY23. Thereafter it is assumed that any reduction in freight rates will, broadly, be offset
by a less favourable currency exchange rate than the hedged rate during FY23;
•
the Base Case provides for known or expected inflationary increases including those associated with significantly higher electricity
prices which are assumed to double and not to reduce during the going concern period, and wage rates including further increases in
the National Living Wage;
•
capital expenditure levels are in line with the Group’s strategic plan, which would enable a reduction in capital expenditure in the event
of a Downside scenario occurring; and
•
the plan allows for the resumption of dividend payments.
Under the Base Case scenario, the Group’s forecasts show that it will not draw on its bank facility at any point. Whilst it may not be
relevant given it is not envisaged that the facility would be used under the Base Case scenario, nevertheless the Base Case indicates
that the financial covenants are complied with at all times.
The output of the Base Case model scenario therefore indicates that the Group would have sufficient financial resources to continue
to meet its liabilities as they fall due over the going concern period.
TheWorks.co.uk plc Annual Report and Accounts 20229898
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
1. Accounting policies continued
(b) Basis of preparation continued
(i) Going concern continued
Measures to maintain or increase liquidity in the event of a significant downturn in trading
During the COVID-19 pandemic the Group demonstrated that it was capable of taking measures to maintain or improve liquidity,
and subsequently, during FY22, the Group has continued to generate positive cash flow.
If deemed necessary, mitigating actions would be taken in response to a significant downturn in trading, which would increase liquidity.
These may include, for example, delaying and reducing stock purchases, stock liquidation, reductions in capital expenditure, the review of
payment terms and the review of dividend levels. Some of these potential mitigations have been built into the Downside Case model, and
some have been noted as additional measures that may be taken in practice in the event of that scenario, or worse, actually occurring.
Severe but plausible Downside Case scenario
The Downside Case makes the following assumptions to reflect more adverse conditions compared to the Base Case:
•
store LFL sales are assumed to be 5% lower than the Base Case during the peak period prior to Christmas 2022, to allow for the
possibility that consumer spending is adversely affected for the reasons described above. Recent store sales levels have been slightly
above the Base Case level;
•
online sales are assumed to be lower than in the Base Case, reflecting the possibility that the recent performance is due to external
factors beyond our control, such as a shift in consumer shopping patterns away from online sales, and/or the failure by the Group
to successfully implement some or all of its plans to improve the online sales performance;
•
the gross margin assumptions are consistent with the Base Case, which the Board believes already takes a sufficiently cautious view
of expected freight rates, even allowing for a severe but plausible Downside scenario; and
•
volume related costs in the Downside Case are lowered where they move directly with sales levels; for example, online fulfilment and
marketing costs are assumed to reduce to correspond with the lower online sales. The model also reflects certain steps which could be
taken to mitigate the effect of lower sales levels, depending on management’s assessment of the situation at the time. These include
adjustments to stock purchases, reducing capital expenditure, reductions in headcount or labour usage, a reduction in discounts
allowed as part of the Group’s loyalty scheme and suspending the payment of dividends.
Under the Downside Case scenario, due to the mitigations built into the model, the Group’s forecasts show that it will not draw on its
bank facility at any point during the going concern period. Again, whilst it is may not be relevant if the facility is not actually required,
nevertheless the Downside Case also indicates that the financial covenants are complied with at all times.
Having considered the output of the Downside Case and the additional mitigating steps available, the Board’s conclusion is that the
business would continue to have adequate resources to continue in operation under this severe but plausible set of assumptions.
Consideration of more severe scenarios
Given the current rate of inflation and its potential impact on consumer confidence and spending, the Board believes that the Works
value proposition positions it well to benefit from any tendency consumers may have to trade down in pursuit of better value. However, the
Board also recognises that more severe downside scenarios than those modelled might arise.
Accordingly, it has considered a range of more severe possibilities than are reflected in the Downside Case, including a 10% reduction in
sales between January 2023 and April 2024 on the basis that consumers may prioritise Christmas, but cut back on spending thereafter
if their disposable incomes reduce for a sustained period. In these circumstances, in addition to the measures included in the Downside
Case, further mitigating measures would be required and are available which when implemented, would generate additional profit and/
or cash and provide further liquidity headroom and/or further headroom in relation to the financial covenants. Such measures could
include further reductions in capital expenditure and further reductions in discretionary expenditure in areas such as travel, training
and professional fees.
Conclusion regarding basis of preparation
The current economic environment, characterised by higher inflation than has been experienced for a number of years, and a high level
of uncertainty about how long the situation will persist and whether it will become worse before it improves, creates a higher than normal
level of uncertainty with regard to the strength of consumer spending. However, the Board’s assessment is that, despite this, the overall
level of risk is not as high as was represented by COVID-19, which resulted in a complete inability to operate the majority of the Group’s
business for significant periods of time. The resilience demonstrated by the business during those periods, in very challenging conditions,
provides additional assurance about the Group’s ability to continue as a going concern in the event of an extended economic downturn
due to high inflation etc.
Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for
at least twelve months from the date of approval of the financial statements and have therefore prepared the financial statements
on a going concern basis.
(ii) New accounting standards
The Group has applied the following new standards and interpretations for the first time for the annual reporting period commencing
3 May 2021:
•
COVID-19 Related Rent Concessions (Amendments to IFRS 16)
•
Interest Rate Benchmark Reform: Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The adoption of the standards and interpretations listed above has not led to any changes to the Group’s accounting policies or had
any other material impact on the financial position or performance of the Group.
TheWorks.co.uk plc Annual Report and Accounts 2022 99
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
99
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
1. Accounting policies continued
(b) Basis of preparation continued
(ii) New accounting standards continued
As at the date of approval of these financial statements, the following standards and interpretations, which have not been applied
in these financial statements, were in issue, but not yet effective:
•
IFRS 17 Insurance Contracts
•
Property, Plant and Equipment – Proceeds Before Intended Use (Amendments to IAS 16)
•
Reference to the Conceptual Framework (Amendments to IFRS 3)
•
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
•
Annual Improvements to IFRS Standards 2018-2020
•
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
•
Definition of Accounting Estimates (Amendments to IAS 8)
•
Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction (Amendments to IAS 12)
•
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1 Presentation of Financial Statements)
The adoption of the standards and interpretations listed above is not expected to have a material impact on the financial position or
performance of the Group.
(c) Accounting convention
The consolidated financial statements have been prepared under the historical cost convention, except for certain financial assets
and financial liabilities (including derivative instruments), which are held at fair value.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to direct the activities that affect those returns through its power over the entity. Consolidation of a subsidiary begins
from the date control commences and continues until control ceases. The Company reassesses whether or not it controls an investee
if circumstances indicate that there are changes to the elements of control detailed above.
(e) Business combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business
combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred
to the Group.
The Group measures goodwill at the acquisition date as the fair value of the consideration transferred, less the fair value of identifiable
assets acquired and liabilities assumed. Any contingent consideration payable is recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Costs related to the acquisition
are expensed to the income statement as incurred.
(f) Key sources of estimation uncertainty
The preparation of consolidated financial statements requires the Group to make estimates and judgements that affect the application
of policies and reported amounts.
Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will
represent a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Key sources of estimation uncertainty which are material to the financial statements are described in the context of the matters to which
they relate, in the following notes:
Description Note Page
Going concern 1 97
Inventory – shrinkage provision 17 115
2. Segmental reporting
IFRS 8 requires segment information to be presented on the same basis as used by the Chief Operating Decision Maker for assessing
performance and allocating resources.
The Group has one operating segment with two revenue streams, in store and online. This reflects the Group’s management and reporting
structure as viewed by the Board of Directors, which is considered to be the Group’s Chief Operating Decision Maker. Aggregation is
deemed appropriate due to both operating segments having similar economic characteristics, similar products on offer and a similar
customer base.
TheWorks.co.uk plc Annual Report and Accounts 2022100100
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
3. Revenue
Accounting policy
Revenue represents receipts from the sale of goods to customers, less deductions for actual and expected returns, discounts and
vouchers redeemable by members of the Group’s loyalty scheme, and is stated net of value added tax and other sales taxes. Revenue is
recognised when performance obligations are satisfied and goods are delivered to the customer and the control of goods is transferred
to the buyer.
Transactions that result in customers earning points under the Group’s loyalty scheme are accounted for as multiple element revenue
transactions and the fair value of the consideration received is allocated between the goods supplied and the points granted. The
consideration allocated to the points is measured by reference to their fair value – the amount for which the points could theoretically
be sold separately. The consideration allocated to the points is not recognised as revenue at the time of the initial sale transaction but
is deferred and recognised as revenue when the points are redeemed and the Group’s obligations have been fulfilled.
FY22
£000
FY21
£000
Sale of goods
UK 260,087 177,730
EU 4,543 2,950
Total revenues 264,630 180,680
Seasonality of operations
The Group’s revenue is subject to seasonal fluctuations as a result of peaking during the approach to the Christmas period, from October
to December. Therefore, the first half of the financial year, from April to October, typically produces lower revenue and profit results than
the second half.
4. Other operating income
Accounting policy
The business was classified as a ‘non-essential retailer’ and was therefore required to close its shops during periods of lockdown in the
prior financial year. Accordingly, the Group made full use of the support schemes available from the Government to partially mitigate the
loss of profit caused by the various periods of closure of the retail stores. Support has been received through three mechanisms, described
below, and as summarised in the table:
1. the Coronavirus Job Retention Scheme (CJRS), the Government’s support measure relating to employment. This provided grants to
cover wages of furloughed colleagues with payments available of up to 80% of colleagues’ wages, up to a maximum of £2,500 per
month plus National Insurance and auto-enrolled pension contributions, to the extent these could be claimed;
2. business rates relief; and
3. local business support grants.
Amounts received relating to the CJRS scheme and local business support grants must be classified as a government grant and
accounted for in accordance with IAS 20 Government Grants. Such grants are recognised in the income statement in the period in which
the associated costs for which the grants are intended to compensate are incurred. The grant income is reported as ‘other operating
income’ in the income statement. The £119k charge noted below is a correction of an immaterial overstatement of the CJRS income
reported in respect of the prior period.
The total business rates relief received during the year was £5,828k (FY21: £14,165k).
FY22
£000
FY21
£000
COVID-19 furlough scheme grants receivable (119) 15,309
COVID-19 business grants receivable — 1,765
Rent receivable 8 7
(111) 17,081
5. Alternative performance measures (APMs)
Accounting policy
The Group tracks a number of APMs in managing its business, which are not defined or specified under the requirements of IFRS because
they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated
and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders
with additional helpful information on the performance of the business. They are consistent with how the business performance is planned
and reported internally, and are also consistent with how these measures have been reported historically. Some of the APMs are also used
for the purpose of setting remuneration targets.
The APMs should be viewed as supplemental to, but not as a substitute for, measures presented in the consolidated financial statements
prepared in accordance with IFRS. The Group believes that the APMs are useful indicators of its performance but they may not be comparable
with similarly titled measures reported by other companies due to the possibility of differences in the way they are calculated.
TheWorks.co.uk plc Annual Report and Accounts 2022 101
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
101
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
5. Alternative performance measures (APMs) continued
Like-for-like (LFL) sales
LFL sales are normally defined by the Group as the year-on-year growth in gross sales from stores which have been opened for a full
63 weeks (but excluding sales from stores closed for all or part of the relevant period or prior year comparable period), and from the
Company’s online store, calculated on a calendar week basis. The LFL sales increase has been calculated with reference to the FY20
comparative sales figures, or two-year LFL, because the extended periods of enforced store closures during FY21 prevent that period from
forming the basis of meaningful comparisons. For the last five weeks of the period, it has been necessary to calculate the LFL percentages
with reference to the corresponding weeks in FY19, because the equivalent weeks during FY20 were also affected by the first period of
enforced store closures. Similar comparison periods are also used for the total sales growth figures quoted. The measure is used widely
in the retail industry as an indicator of sales performance.
A reconciliation of IFRS revenue to sales on a LFL basis is set out below:
FY22
£000
FY21
£000
Sales from LFL stores 219,308 128,901
Online sales 41,747 62,084
Total LFL 261,055 190,985
Non-LFL store sales 37,360 15,176
Total gross sales 298,415 206,161
VAT (33,511) (24,290)
Loyalty points (274) (1,191)
Revenue per consolidated income statement 264,630 180,680
Memo: total store gross sales (LFL plus non-LFL) 256,668 144,077
EBITDA, Adjusted EBITDA and Adjusted profit after tax
EBITDA is defined by the Group as earnings before interest, tax, depreciation, amortisation and profit/loss on the disposal of fixed assets.
Adjusted EBITDA is calculated by adding back or deducting Adjusting items to EBITDA. See Note 6 for a description of Adjusting items.
The Group also reports another measure of Adjusted EBITDA, which removes the impact of IFRS 16, to provide a measure that is consistent
with internal reporting and is as used by the Group in its investment appraisals. The table provides a reconciliation of Adjusted EBITDA to
profit/(loss) after tax and the impact of IFRS 16:
FY22
£000
FY21
£000
Non-IFRS 16 Adjusted EBITDA
1
16,562 4,285
IAS 17 income statement charges not recognised under IFRS 16 24,433 27,454
Foreign exchange difference on euro leases 120 59
Post-IFRS 16 Adjusted EBITDA
1
41,115 31,798
Loss on disposal of right-of-use assets recognised under IFRS 16 (2,066) (353)
Profit on disposal of lease liability recognised under IFRS 16 2,340 464
Loss on disposal of property, plant and equipment (244) (262)
Loss on disposal of intangible assets — (311)
Depreciation of property, plant and equipment (5,005) (5,187)
Depreciation of right-of-use assets (20,029) (23,311)
Amortisation (806) (947)
Finance expenses (5,192) (5,486)
Finance income 16 18
Tax (charge)/credit (1,436) 502
Adjusted profit/(loss) after tax 8,693 (3,075)
Adjusting items (including impairment charges and reversals) 29 776
Tax charge — —
Profit/(loss) after tax 8,722 (2,299)
1 Also adjusted for profit and loss on disposal of right-of-use assets and liabilities, property, plant and equipment and intangible assets.
TheWorks.co.uk plc Annual Report and Accounts 2022102102
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
5. Alternative performance measures (APMs) continued
Profit before tax and IFRS 16
The table provides a reconciliation of profit/(loss) before tax and IFRS 16 adjustments to profit/(loss) before tax.
FY22 FY21 (Restated
1
)
Adjusted
£000
Adjusting items
£000
Total
£000
Adjusted
£000
Adjusting items
£000
Total
£000
Profit/(loss) before tax before IFRS 16
adjustments 9,525 (241) 9,284 (3,395) (94) (3,489)
Remove IAS 17 rental charge 24,306 — 24,306 27,331 — 27,331
Remove hire costs from hire of equipment 126 — 126 124 — 124
Remove depreciation charged on the
existing assets 276 — 276 329 — 329
Remove interest charged on the
existing liability 31 — 31 44 — 44
Depreciation charge on right-of-use assets (20,029) — (20,029) (23,311) — (23,311)
Interest cost on lease liability (4,500) — (4,500) (4,869) — (4,869)
Loss on disposal of right-of-use assets (2,066) — (2,066) (353) — (353)
Profit on disposal of lease liability 2,340 — 2,340 464 — 464
Foreign exchange difference on euro leases 120 — 120 59 — 59
Additional impairment charge under IAS 36 — 270 270 — 870 870
Net impact on profit/(loss) 604 270 874 (182) 870 688
Profit/(loss) before tax 10,129 29 10,158 (3,577) 776 (2,801)
1 In the prior year financial statements, the allocation of fixed asset impairment charges between the right-of-use asset and property, plant and equipment
categories was incorrect. The prior year balances have therefore been restated, resulting in an increase in the right of use asset balance of £801k, and a
decrease in the property plant and equipment balance of £801k. As such, this has increased the prior year loss before tax before IFRS 16 adjustments by £801k.
Adjusted profit metrics
Key profit measures including operating profit, profit before tax, profit for the period and earnings per share are calculated on an adjusted
basis by adding back or deducting Adjusting items. These adjusted metrics are included within the consolidated income statement and
consolidated statement of other comprehensive income, with further details of Adjusting items included in Note 6.
6. Adjusting items
Adjusting items are those items of income and expenditure that, by reference to the Group, are material in size and unusual in nature or incidence
and that in the judgement of the Directors should be disclosed separately on the face of the financial statements to ensure both that the reader
has a proper understanding of the Group’s financial performance and that there is comparability of financial performance between periods.
The Directors believe that the Adjusted profit and earnings per share measures included in this report provide additional useful information to
shareholders. These measures are consistent with how business performance is measured internally. The profit before tax and Adjusting items
measure is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies.
If a transaction or related series of transactions has been treated as an Adjusting item in one accounting period, the same treatment will be
applied consistently year on year.
In relation to FY22, the items classified as ‘Adjusting’, as shown below, were related to transactions that had been treated as Adjusting in prior periods.
FY22
£000
FY21
£000
Cost of sales
Impairment charges
1
1,126 961
Impairment reversals
1
(1,155) (1,873)
HMRC duty provision
2
— (63)
Total cost of sales (29) (975)
Administrative expenses
Salary and other costs
3
— 322
Packaging waste costs provision release
4
— (123)
Total administrative expenses — 199
Total Adjusting items (29) (776)
1 These relate to fixed asset impairment charges and reversals of prior year impairment charges.
2 This relates to a provision recognised regarding a HMRC review of the Group’s duty rates.
3 Salary and other costs relate to payments to past Directors, and other associated costs.
4 This related to the release of a provision recognised regarding packaging waste cost penalties from FY18.
TheWorks.co.uk plc Annual Report and Accounts 2022 103
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
103
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
7. Operating profit
Operating profit (before Adjusting items) is stated after charging/(crediting) the following items:
FY22
£000
FY21
£000
Loss on disposal of property, plant and equipment 244 262
Loss on disposal of intangible assets — 310
Loss on disposal of right-of-use assets 2,066 353
Profit on disposal of lease liability (2,340) (464)
Depreciation 25,034 28,498
Amortisation 806 947
Adjusting items (see Note 6) (29) (776)
Operating lease payments:
– Hire of plant and machinery
1
389 392
– Other operating leases
1
1,549 439
Net foreign exchange losses (128) 135
Cost of inventories recognised as an expense 106,954 69,364
Staff costs 60,031 49,989
1 These balances relate to non-IFRS 16 operating lease rentals during the year; please refer to Note 15 for further details of these balances.
Expenses reclassification
Certain online costs relating to fulfilment and website maintenance previously treated as distribution or administrative expenses have
been reclassified to cost of sales in the FY22 accounts as this more accurately reflects their nature. The prior year balances have been
reclassified to maintain consistency; the effect on gross profit, distribution expenses and administrative expenses is summarised in the
table below:
Per FY21
financial
statements
£000
Adjustment
£000
FY21
restated
balance
£000
Cost of sales (159,758) (9,609) (169,367)
Gross profit 20,922 (9,609) 11,313
Other operating income 17,081 — 17,081
Distribution expenses (15,075) 8,635 (6,440)
Administrative expenses (20,261) 974 (19,287)
Operating profit 2,667 — 2,667
Auditor’s remuneration:
FY22
£000
FY21
£000
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 300 180
Amounts payable in respect of other services to the Company and its subsidiaries
Audit of the accounts of subsidiaries 40 40
Audit related assurance services 1 1
Total services 341 221
Please refer to the Audit Committee report for details regarding the safeguarding of auditor objectivity and independence.
TheWorks.co.uk plc Annual Report and Accounts 2022104104
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
8. Staff numbers and costs
The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows:
Number of employees
FY22
FY21
1
(Restated)
Store support centre colleagues 216 209
Store colleagues 3,468 3,474
Warehouse and distribution colleagues 140 135
3,824 3,818
1 The prior year number of store colleagues has been restated to include the seasonal staff employed during the peak trading months from October
to December.
The corresponding aggregate payroll costs were as follows:
FY22
£000
FY21
£000
Wages and salaries 55,600 46,479
Social security costs 3,654 2,867
Contributions to defined contribution pension schemes 777 643
Total employee costs 60,031 49,989
Agency labour costs 1,505 1,022
Total staff costs 61,536 51,011
9. Finance income and expense
Accounting policy
Finance expense comprises interest charges. Borrowing costs that are directly attributable to the acquisition, construction or production
of an asset that takes a substantial time to be prepared for use are capitalised as part of the cost of that asset, and subsequently
amortised to finance expenses over the appropriate life.
Finance income comprises interest income and is recognised when it is probable that the economic benefits will flow to the Group and
the amount of revenue can be measured reliably. Interest is recognised in profit as it accrues, using the effective interest method.
Recognised in consolidated statement of comprehensive income
FY22
£000
FY21
£000
Finance income
Bank interest receivable 16 18
Total finance income 16 18
Finance expense
Bank interest payable 401 322
Other interest payable 291 295
Interest on lease liabilities 4,500 4,869
Total finance expense 5,192 5,486
10. Taxation
Accounting policy
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
TheWorks.co.uk plc Annual Report and Accounts 2022 105
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
105
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
10. Taxation continued
Accounting policy continued
Deferred tax continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable
profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised
based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged
or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case
the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive
income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly
in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect
is included in the accounting for the business combination.
Recognised in consolidated income statement
FY22
£000
FY21
£000
Current tax expense
Current year 2,059 —
Adjustments for prior years 3 22
Current tax expense 2,062 22
Deferred tax credit
Origination and reversal of temporary differences (17) (423)
Increase in tax rate (825) —
Adjustments for prior years 216 (101)
Deferred tax credit (626) (524)
Total tax expense/(credit) 1,436 (502)
The UK corporation tax rate for FY22 and FY21 was 19%. Taxation for other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
As the deferred tax assets and liabilities should be recognised based on the corporation tax rate applicable when they are anticipated
to unwind, the assets and liabilities on UK operations have been recognised at a rate of 25% (FY21: 19%). Assets and liabilities arising on
foreign operations have been recognised at the applicable overseas tax rates.
An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. As such the UK
deferred tax liability as at 1 May 2022 was calculated at 25%.
TheWorks.co.uk plc Annual Report and Accounts 2022106106
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
10. Taxation continued
Reconciliation of effective tax rate
FY22
£000
FY21
£000
Profit/(loss) for the year 10,158 (2,801)
Tax using the UK corporation tax rate of 19% 1,930 (532)
Non-deductible expenses 182 105
Effect of tax rates in foreign jurisdictions (40) 4
Tax under/(over) provided in prior periods 219 (79)
Utilisation of unrecognised tax losses brought forward (116) —
Deferred tax not recognised 86 —
Change in tax rate (825) —
Total tax expense/(credit) 1,436 (502)
The Group’s total income tax expense in respect of the period was £1,436k (FY21: credit of £502k). The effective tax rate on the total profit
before tax was 14.1% (FY21: 17.9% on the loss before tax) whilst the effective tax rate on the total profit before Adjusted items was 14.2%
(FY21: 14.0% on the loss before Adjusted items). The difference between the total effective tax rate and the Adjusted tax rate relates
to fixed asset impairment charges and reversals within Adjusting items being non-deductible for tax purposes.
11. Dividends
Accounting policy
At the balance sheet date, dividends are only recognised as a liability if they are appropriately authorised and are no longer at the
discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.
No dividends were paid to shareholders during FY21 or FY22.
Dividend equivalents totalling £175k (FY21: £74k) were accrued in the year in relation to share-based long-term incentive schemes.
The Board has recommended the payment of a 2.4 pence per share final dividend in respect of FY22 (FY21: £Nil).
12. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss for the period, attributable to ordinary shareholders, by the weighted
average number of ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares in issue for the period, Adjusted for the dilutive effect
of potential ordinary shares. Potential ordinary shares represent shares that may be issued in connection with employee share
incentive awards.
The Group has chosen to present an Adjusted earnings per share measure, with profit adjusted for Adjusting items (see Note 6 for further
details) to reflect the Group’s underlying profit for the year.
FY22
Number
FY21
Number
Number of shares in issue 62,500,000 62,500,000
Number of dilutive share options 940,673 –
Number of shares for diluted earnings per share 63,440,673 62,500,000
£000 £000
Profit/(loss) for the financial period 8,722 (2,299)
Adjusting items (29) (776)
Total Adjusted profit/(loss) for Adjusted earnings per share 8,693 (3,075)
Pence Pence
Basic earnings per share 14.0 (3.7)
Diluted earnings per share 13.7 (3.7)
Adjusted basic earnings per share 13.9 (4.9)
Adjusted diluted earnings per share 13.7 (4.9)
TheWorks.co.uk plc Annual Report and Accounts 2022 107
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
107
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
13. Intangible assets
Accounting policy
Goodwill
Goodwill arising on consolidation represents any excess of the consideration paid and the amount of any non-controlling interest in
the acquiree over the fair value of the identifiable assets and liabilities (including intangible assets) of the acquired entity at the date
of the acquisition. Goodwill is recognised as an asset and assessed for impairment annually or as triggering events occur. Any impairment
in value is recognised within the income statement.
Software
Where computer software is not an integral part of a related item of computer hardware, the software is treated as an intangible asset.
Capitalised software costs include external direct costs of goods and services, as well as internal payroll related costs for employees who
are directly associated with the project. Internal payroll related costs are capitalised if the recognition criteria of IAS 38 Intangible Assets
are met or are expensed as incurred otherwise.
Capitalised software development costs are amortised on a straight-line basis over their expected economic lives, normally between
three and seven years. Computer software under development is held at cost less any recognised impairment loss. Any impairment
in value is recognised within the income statement.
Goodwill
£000
Software
£000
Total
£000
Cost
Balance at 3 May 2021 16,180 8,043 24,223
Additions — 1,015 1,015
Balance at 1 May 2022 16,180 9,058 25,238
Amortisation and impairment
Balance at 3 May 2021 16,180 5,580 21,760
Amortisation charge for the year — 806 806
Balance at 1 May 2022 16,180 6,386 22,566
Net book value
At 3 May 2021 — 2,463 2,463
At 1 May 2022 — 2,672 2,672
Goodwill
£000
Software
£000
Total
£000
Cost
Balance at 27 April 2020 16,180 8,415 24,595
Additions — 526 526
Disposals — (898) (898)
Balance at 2 May 2021 16,180 8,043 24,223
Amortisation and impairment
Balance at 27 April 2020 16,180 5,221 21,401
Amortisation charge for the year — 947 947
Disposals — (588) (588)
Balance at 2 May 2021 16,180 5,580 21,760
Net book value
At 27 April 2020 — 3,194 3,194
At 2 May 2021 — 2,463 2,463
Goodwill impairment testing
Goodwill of £16.2m was impaired to £Nil in FY20; therefore, no further impairment testing is necessary in relation to this.
TheWorks.co.uk plc Annual Report and Accounts 2022108108
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
14. Property, plant and equipment
Accounting policy
Items of property, plant and equipment are stated at their cost of acquisition or production, less accumulated depreciation and
accumulated impairment losses.
Depreciation is charged on a straight-line basis over the estimated useful lives as follows:
•
Leasehold property improvements: over the life of the lease.
•
Fixtures and fittings: 15% per annum straight line or depreciated on a straight-line basis over the remaining life of the lease, whichever
is shorter.
•
Computer equipment: 25 to 50% per annum straight line.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date, with the effect of any
changes in estimate accounted for on a prospective basis. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between
the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the
assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the profit or loss in the period
in which they are incurred.
IFRS 16
IFRS 16 creates the concept of right-of-use assets. The accounting policy and description of the accounting treatment in respect of IFRS 16
is included within Note 15.
Impairment of tangible and intangible assets
The carrying amounts of the Group’s tangible and intangible assets with a definite useful life are reviewed at each balance sheet date
to determine whether there is any indication of impairment to their value. If such an indication exists, the asset’s recoverable amount is
estimated and compared to its carrying value. Where the asset does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the CGU to which the asset belongs. The Directors consider an individual retail store
to be a cash generating unit (CGU).
The recoverable amount of an asset is the greater of its fair value less disposal cost and its value in use (the present value of the future
cash flows that the asset is expected to generate). In determining value in use, the present value of future cash flows is discounted using
a pre-tax discount rate that reflects current market assessments of the time value of money in relation to the period of the investment
and the risks specific to the asset concerned. Where the carrying value exceeds the recoverable amount a provision for the impairment
loss is established with a charge being made to the income statement. When the reasons for a write down no longer exist, the write down
is reversed in the income statement up to the net book value that the relevant asset would have had if it had not been written down and
if it had been depreciated. For intangible assets that have an indefinite useful life the recoverable amount is estimated at each annual
balance sheet date.
Measuring recoverable amounts
The key assumptions for the value in use calculations are those regarding the growth rates of sales and gross margins, operating costs,
long-term growth rates, maintenance capital expenditure and the pre-tax discount rate used to discount the assumed cash flows to
present value.
Impairment triggers
In FY21, due to COVID-19 and its impact on the UK economy and the Group, an impairment review was performed on all stores. As at 1
May 2022 only stores with an indicator of impairment have been included within the impairment assessment, including 38 stores with a
budgeted loss at EBITDA level and an additional 30 stores which have historically been loss making and management is considering the
closure or relocation of the store at the lease break date. An additional 50 stores with a prior year impairment charge have also been
included in the FY22 assessment.
TheWorks.co.uk plc Annual Report and Accounts 2022 109
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
109
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
14. Property, plant and equipment continued
Key assumptions
The key financial assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key
assumptions represent management’s assessment of current market conditions and future trends and have been based on historical
data from both external and internal sources. Management determined the values assigned to these financial assumptions as follows:
The pre-tax discount rate is derived from the Group’s weighted average cost of capital, which has been estimated using the capital asset
pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium, a forecasting risk premium
and a risk adjustment (beta). The post-tax WACC is subsequently adjusted to reflect the specific amount and timing of the future tax
cash flows.
FY22 FY21
Pre-tax discount rate 17.9% 16.8%
Long-term growth rate 2.0% 2.0%
Cash flow forecasts are derived from the most recent Board-approved corporate plans that form the Base Case on which the value in use
calculations are based, and which are described in Note 1(b)(i) (Going concern).
The assumptions used in the estimation of future cash flows are:
•
rates of growth in sales and gross margins, which have been determined on the basis of the factors described in Note 1(b)(i)
(Going concern);
•
operating cost estimates reflect expected changes in the variables that underpin them and, in particular, expected increases in the
National Living Wage; and
•
maintenance capital expenditure includes estimates of ongoing capital expenditure required to maintain the store network,
but excludes any significant growth capital initiatives not committed.
Cash flows beyond the corporate plan period (2026 and beyond) have been determined using the long-term growth rate; this is based
on management’s future expectations, reflecting, amongst other things, current market conditions and future trends and has been based
on historical data from both external and internal sources. Severe weather has been considered when modelling forecasts and it is not
deemed to have a material affect on the projected numbers in the impairment review.
Impairment charge
As at the end of FY21, an impairment charge of £2,588k was recorded against right-of-use assets, property, plant and equipment
relating to 80 stores. Evidence is available from internal reporting that indicates that the economic performance of 48 of these stores
has improved and is expected to continue to do so. As a result, an impairment reversal of £1,155k has been recognised relating to these
stores. Conversely, during FY22 an impairment charge of £1,126k was recognised against a 39 stores, reflecting the underperformance of
these stores for a variety of reasons. A net reversal of £29k has therefore been shown as an Adjusting item on the face of the consolidated
income statement.
Sensitivity analysis
Whilst the Directors believe the assumptions adopted are realistic, reasonably possible changes in key assumptions could occur which
would cause the recoverable amount of certain stores to be lower or higher than the carrying amount. The Directors consider that the only
key assumption that could reasonably be different and cause a material change in the impairment charge is sales growth. A reduction
in sales of 5% from the Base Case plan to reflect a potential Downside Scenario would result in an increase in the impairment charge of
£422k relating to a total of 41 stores, and a decrease in the impairment reversal of £212k relating to 46 stores. An increase in sales of 5%
from the Base Case plan would increase the impairment reversal by £189k relating to 53 stores and decrease the impairment charge by
£321k relating to 33 stores.
Reasonably possible changes to other key assumptions, including a 200 basis point increase in the pre-tax discount rate across all
stores or a 200 basis point reduction in the long-term growth rate, would not result in a significant change to the impairment charges or
reversals, either individually or in combination.
Whilst the Directors consider their assumptions to be realistic, should actual results, including the rate of growth in sales, be different from
expectations, then it is possible that the value of property, plant and equipment included in the balance sheet could become materially
different to the estimates used.
TheWorks.co.uk plc Annual Report and Accounts 2022110110
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
14. Property, plant and equipment continued
RoUA –
property
£000
RoUA –
plant and
equipment
£000
Land and
buildings
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Total
£000
Cost
Balance at 3 May 2021 154,047 1,913 10,682 3,376 26,167 196,185
Additions 3,126 508 (38) 476 1,498 5,570
Disposals (5,768) — (229) (34) (407) (6,438)
Balance at 1 May 2022 151,405 2,421 10,415 3,818 27,258 195,317
Depreciation and impairment
Balance at 3 May 2021 42,442 976 5,555 2,762 14,384 66,119
Depreciation charge for the year 19,597 432 808 640 3,557 25,034
Impairment charge 710 — 155 15 246 1,126
Impairment reversals (980) — (54) (8) (113) (1,155)
Disposals (3,702) — (147) (21) (258) (4,128)
Balance at 1 May 2022 58,067 1,408 6,317 3,388 17,816 86,996
Net book value
At 3 May 2021 111,605 937 5,127 614 11,783 130,066
At 1 May 2022 93,338 1,013 4,098 430 9,442 108,321
RoUA –
property
£000
RoUA –
plant and
equipment
£000
Land and
buildings
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Total
£000
Cost
Balance at 27 April 2020 140,992 1,724 10,591 2,539 25,738 181,584
Additions 18,404 189 151 859 859 20,462
Disposals (Restated
1
) (5,349) — (60) (22) (430) (5,861)
Balance at 2 May 2021 (Restated
1
) 154,047 1,913 10,682 3,376 26,167 196,185
Depreciation and impairment
Balance at 27 April 2020 25,494 459 4,586 2,185 11,036 43,760
Depreciation charge for the year 22,794 517 975 594 3,618 28,498
Impairment charge (Restated
2
) 4 — 150 49 758 961
Impairment reversals (874) — (149) (49) (802) (1,874)
Disposals (Restated
1
) (4,976) — (7) (17) (226) (5,226)
Balance at 2 May 2021 (Restated
1
) 42,442 976 5,555 2,762 14,384 66,119
Net book value
At 27 April 2020 115,498 1,265 6,005 354 14,702 137,824
At 2 May 2021 (Restated
2
) 111,605 937 5,127 614 11,783 130,066
1 In the prior year financial statements leases which had expired and had a nil net book value were not captured within the IFRS 16 disposals assessment.
The carried forwards property right-of-use asset cost and depreciation figures were incorrectly grossed up by £4,725k; as such these prior year balances
have been adjusted. Note that this adjustment has no impact on the FY21 closing net book value of the right-of-use assets or property, plant and equipment.
2 In the prior year financial statements, the allocation of fixed asset impairment charges between the right-of-use asset and property, plant and equipment
categories was incorrect. The prior year balances have therefore been restated, resulting in an increase in the right-of-use asset balance of £801k, and a
decrease in the property plant and equipment balances of £801k.
Per FY21
financial
statements
£000
Adjustment
£000
FY21
restated
balance
£000
Right-of-use assets 111,741 801 112,542
Property, plant and equipment 18,325 (801) 17,524
TheWorks.co.uk plc Annual Report and Accounts 2022 111
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15. IFRS 16
Accounting policy
IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases.
IFRS 16 requires the use of a single definition of leases, which recognises a right-of-use asset (RoUA) and a lease liability for all leases,
with exceptions only permitted for short-term and low-value leases. Accordingly, the impact of IFRS 16 is to require recognition of a lease
liability and a corresponding RoUA in relation to leases previously classified as operating leases, which were hitherto accounted for via
a single charge to the profit and loss account.
The most significant impact is that the Group’s retail store operating leases are recognised on the balance sheet as right-of-use
assets representing the economic benefits of the Group’s right to use the underlying leased assets, together with the associated
future lease liabilities.
Under IFRS 16, the Group recognises right-of-use assets and lease liabilities at the lease commencement date.
Identifying an IFRS 16 lease
At the inception of a contract, the Group assesses whether it is, or contains, a lease. A contract is, or contains, a lease if it conveys the
right to control the use of an asset for a period of time, in exchange for consideration. Control is conveyed where the Group has both
the right to direct the asset’s use and to obtain substantially all the economic benefits from that use. For each lease or lease component,
the Group follows the lease accounting model as per IFRS 16, unless the permitted recognition exceptions can be used.
Recognition exceptions
The Group leases many assets, including properties, IT equipment and warehouse equipment.
The Group has elected to account for lease payments as an expense on a straight-line basis over the lease term or another systematic
basis for the following types of leases:
(i) leases with a term of twelve months or less; and
(ii) leases where the underlying asset has a low value.
For leases where the Group has taken the short-term lease recognition exemption and there are any changes to the lease term or the
lease is modified, the Group accounts for the lease as a new lease.
For leases where the Group has taken a recognition exemption as detailed above, rentals payable under these leases are charged to
income on a straight-line basis over the term of the relevant lease except, where another more systematic basis is more representative
of the time pattern in which economic benefits from the lease asset are consumed.
Lessee accounting under IFRS 16
Upon lease commencement the Group recognises a right-of-use asset and a lease liability.
Initial measurement
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset, or to restore the underlying asset or the site on which it is located at the end of the lease, less any lease
incentives received.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the
rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the Group uses the incremental
borrowing rate.
Variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability and are initially
measured using the index or rate as at the commencement date. Amounts expected to be payable by the Group under residual value
guarantees are also included. Variable lease payments that are not included in the measurement of the lease liability are recognised
in profit or loss in the period in which the event or condition that triggers payment occurs, unless the costs are included in the carrying
amount of another asset under another accounting standard.
The Group has applied judgement to determine the lease term for some lease contracts that include renewal options. The assessment
of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the value of lease
liabilities and right-of-use assets recognised.
The payments related to leases are presented under cash flows from financing activities and cash flows from operating activities in the
cash flow statement.
Subsequent measurement
After lease commencement, the Group values right-of-use assets using a cost model. Under the cost model a right-of-use asset is
measured at cost less accumulated depreciation and accumulated impairment.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is
re-measured to reflect changes in: the lease term (using a revised discount rate); the assessment of a purchase option (using a revised
discount rate); the amounts expected to be payable under residual value guarantees (using an unchanged discount rate); and future
lease payments resulting from a change in an index or a rate used to determine those payments (using an unchanged discount rate).
The re-measurements are matched by adjustments to the right-of-use asset. Lease modifications may also prompt re-measurement
of the lease liability unless they are determined to be separate leases.
TheWorks.co.uk plc Annual Report and Accounts 2022112112
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
15. IFRS 16 continued
Lessee accounting under IFRS 16 continued
Depreciation of right-of-use assets
The right-of-use asset is subsequently depreciated using the straight-line method, from the commencement date to the earlier of either
the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is reduced by impairment
losses, if any, and adjusted for certain re-measurements of the lease liability.
Extension and termination options
Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise
operational flexibility. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that
includes renewal options and break clauses. The assessment of whether the Group is reasonably certain to exercise such options impacts
the lease term, and therefore the amount of lease liabilities and right-of-use assets recognised.
Judgements in determining the lease term
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise
an extension option, or not to exercise a termination option. Extension options (or periods after termination options) are only included
in the lease term if the lease is reasonably certain to be extended (or not terminated).
For property leases the following factors are the most relevant:
•
the profitability of the leased store and future plans for the business; and
•
if there are any significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend.
COVID-19 concessions
The Group has elected to account for qualifying COVID-19 related rent concessions as variable lease payments, recognising the
concession in the period in which the event or condition that triggers the payments occurs. Rent concessions are qualifying if the following
conditions are met:
(i) the concession is a direct consequence of the COVID-19 pandemic;
(ii) the change in lease payments resulted in revised consideration for the lease that is substantially the same as, or less than,
the consideration for the lease immediately preceding the change;
(iii) the reduction in lease payments only affects payments due on or before 30 June 2022; and
(iv) there is no substantive change to other terms and conditions of the lease.
The Group has applied this practical expedient consistently to all lease contracts with similar characteristics and in similar circumstances.
Amounts recognised in the balance sheet
Right-of-use assets
FY22
£000
FY21
(Restated
– Note 14)
£000
Land and buildings 93,338 111,605
Plant and equipment 1,013 937
Total right-of-use assets 94,351 112,542
Additions to the right-of-use assets during FY22 were £3,634k (FY21: £18,593k).
Lease liabilities
Lease liabilities included in the statement of financial position as at the financial year end:
FY22
£000
FY21
£000
Current 25,434 31,552
Non-current 85,702 104,362
111,136 135,914
Maturity analysis – contractual undiscounted cash flows:
FY22
£000
FY21
£000
Less than one year 31,592 35,978
Two to five years 83,017 86,601
More than five years 21,862 30,158
Total undiscounted lease liabilities 136,471 152,737
TheWorks.co.uk plc Annual Report and Accounts 2022 113
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113
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
15. IFRS 16 continued
Amounts recognised in the statement of profit and loss
FY22
£000
FY21
(Restated
– Note 14)
£000
Depreciation charge on right-of-use assets (RoUA) 20,029 23,311
Interest cost on lease liability 4,500 4,869
Loss on disposal of RoUA 2,066 353
Profit on disposal of lease liability (2,340) (464)
Foreign exchange difference on euro leases 120 59
Additional impairment charge under IAS 36 (270) (870)
Operating lease rentals – hire of plant and equipment
– Low-value leases 389 392
Total plant and equipment operating lease rentals 389 392
Operating lease rentals – store leases
– Stores with variable lease rentals 454 20
– Concession leases (the landlord has substantial substitution rights) 943 1,310
– Low-value leases (11) (23)
– Lease is expiring within 12 months or has rolling break clauses 87 98
– Lease has expired 484 149
– Variable lease payments as a result of COVID-19 concessions (408) (1,115)
Total store operating lease rentals 1,549 439
Depreciation of right-of-use asset by class:
FY22
£000
FY21
£000
Land and buildings 19,597 22,794
Plant and equipment 432 517
Total right-of-use asset depreciation 20,029 23,311
Other lease rental commitments
Non-cancellable operating lease rentals for leases excluded from the IFRS-16 assessment are as follows:
FY22 FY21
Motor vehicle
leases
Concession
store leases Total
Motor vehicle
leases
Concession
store leases Total
£000 £000 £000 £000 £000 £000
Less than one year 386 589 975 247 326 573
Between one and five years 200 729 929 230 51 281
More than five years — — — — — —
Total operating lease commitments 586 1,318 1,904 477 377 854
16. Deferred tax assets
Recognised deferred tax assets
Deferred tax assets are attributable to the following:
Assets Liabilities
FY22
£000
FY21
£000
FY22
£000
FY21
£000
Property, plant and equipment 1,637 732 — —
Leases 1,645 1,420 — —
Temporary timing differences 195 372 — —
Financial assets/liabilities — 328 — —
Tax assets 3,477 2,852 — —
TheWorks.co.uk plc Annual Report and Accounts 2022114114
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
16. Deferred tax assets continued
Recognised deferred tax assets continued
Movement in deferred tax during the year
Fixed assets
£000
Leases
£000
Temporary
timing
differences
£000
Financial
assets/
liabilities
£000
Total
£000
At 3 May 2021 732 1,420 372 328 2,852
Adjustment in respect of prior years — — (216) — (216)
Deferred tax credit/(charge) to profit and loss 905 225 39 (328) 841
Deferred tax credit/(charge) in equity profit and loss — — — — —
At 1 May 2022 1,637 1,645 195 — 3,477
17. Inventories
Accounting policy
Inventories comprise stocks of finished goods for resale and are valued on a weighted average cost basis and carried at the lower of cost
and net realisable value. ‘Cost’ includes all direct expenditure and other attributable costs incurred in bringing inventories to their present
location and condition.
The process of purchasing inventories may include the use of cash flow hedges to manage foreign exchange risk. Where hedge
accounting applies, an adjustment is applied such that the cost of stock reflects the hedged exchange rate.
Inventory summary
FY22
£000
FY21
£000
Gross stock value 29,817 31,045
Less: stock provisions for shrinkage and obsolescence (3,252) (4,391)
Goods for resale net of provisions 26,565 26,654
Stock in transit 2,822 2,478
Inventory 29,387 29,132
The cost of inventories recognised as an expense during the period was £107.7m (FY21: £69.0m).
Stock provisions
The Group makes provisions in relation to stock quantities, due to stock losses not yet reflected in the accounting records, commonly
referred to as shrinkage and, in relation to stock value, where the net realisable value of an item is expected to be lower than its cost,
due to obsolescence.
The calculation of stock provisions entails the use of estimates and judgements combined with mechanistic calculations and
extrapolations. The shrinkage provision represents a key source of estimation uncertainty.
Shrinkage provision
As at the end of FY21 the unrecognised shrinkage provision was £2.6m, which was significantly higher than the amount usually required in
a normal, non-COVID-19 impacted year. This was due to the closure of stores for extended periods of FY21, which significantly interrupted
the stock counting process and the corresponding routine process of correcting the stock file.
During the course of FY22, the Group has carried out ‘tactical’ (perpetual inventory basis) stock counts in its retail stores on a regular basis,
such that at the end of the financial year a significant proportion of stock in stores had been counted and stock file adjustments made
to correct errors indicated by the counts. In addition, full four wall counts (i.e. a controlled count of all stock in a store) were performed
in 71 stores during the last 6 weeks of the financial year, and an additional 53 four wall counts were performed in the month following
the financial year end. Through these processes, the Group establishes that its accounting records are maintained to reflect the actual
quantities of stock in stores. This process also provides the Group with an indication of the typical percentage of stock loss, which is used
to calculate, by extrapolation, unrecognised shrinkage at the balance sheet date.
The stock records were updated to reflect the results of stock counts during the financial year, as a result of which the provision required
for unrecognised shrinkage materially decreased compared with the value at the end of FY21, by £0.7m, to £1.9m.
The percentages used in calculating the unrecognised shrinkage provision were based on data obtained from the full four wall counts
performed towards the end of the financial year and during the first month of FY23. The shrinkage provision was £1.9m at the period end
(FY21: £2.6m), representing 8.6% of gross store stock (FY21: 12.3%). The provision relates to store stock with a value of £22.2m (FY21: £21.2m).
This represents management’s best estimate of the likely level of stock losses experienced, but the actual level of stock loss will only be
established once all products in all locations have been counted. A 20% increase/(decrease) in the shrinkage percentage used would
result in an increase/(decrease) to the shrinkage provision of £334k to £2.3m/(£1.6m). This represents a reasonably possible range of
estimation uncertainty with regard to the unrecognised shrinkage provision.
The shrinkage provision has been estimated based on the results the four wall counts which may not be representative of the store
population as a whole. Due to the level of the provisions, combined with the risk that the sample on which it is based may not be
representative of the populations as a whole, the calculation of the stock shrinkage provision is considered a key source of estimation
uncertainty for the FY22 financial statements.
TheWorks.co.uk plc Annual Report and Accounts 2022 115
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
115
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
17. Inventories continued
Stock provisions continued
Obsolescence provision
Generally, the Group’s inventory does not comprise a large proportion of stock with a ‘shelf life’. Stock lines which are slow selling because
they have been less successful than planned or which have sold successfully and become fragmented as they reach the natural end
of their planned selling period, are usually discounted and sold during ‘sale’ events, for example the January sale. This stock is referred
to as terminal stock.
During the prior financial year, the closures of the stores due to the COVID-19 pandemic interrupted the orderly process of selling through
terminal stock, particularly during the UK-wide lockdown implemented between January and April 2021, which coincided with the period
when the January sale would normally have taken place. As a result, at the end of FY21, the Group carried a higher than normal level of
terminal stock and the obsolescence provision was higher than normal, at £1.8m.
During FY22 a high degree of focus has been placed on clearing terminal stock and at the period end the Group held significantly
less terminal stock than the prior year. Consequently, the obsolescence provision has reduced by £0.5m to £1.3m.
18. Trade and other receivables
FY22
£000
FY21
£000
Current
Trade receivables 2,606 2,214
Other receivables 1,793 423
Prepayments 4,028 3,362
Accrued income — 914
Trade and other receivables 8,427 6,913
Trade receivables are attributable to sales which are paid for by credit card and are classified as finance assets at amortised cost; they
are all current. No credit is provided to customers. The value and nature of trade receivables is such that no material credit losses occur;
therefore no loss allowance has been recorded at the period end (FY21: £Nil).
Other receivables relate to stock on water deposits paid, and other accounts payable debit balances. Prepayments relate to prepaid
property costs and other expenses.
The accrued income balance in the prior year relates to the COVID-19 furlough scheme Government grants receivable as detailed
in Note 4.
19. Cash and cash equivalents
FY22
£000
FY21
£000
Cash and cash equivalents per balance sheet 16,280 8,315
Net cash and cash equivalents 16,280 8,315
The Group’s cash and cash equivalents are denominated in the following currencies:
FY22
£000
FY21
£000
Sterling 12,198 3,385
Euro 3,102 1,138
US dollar 980 3,792
Net cash and cash equivalents 16,280 8,315
At 1 May 2022 the Group held net cash (excluding lease liabilities) of £16.3m (FY21: net cash (excluding lease liabilities) of £0.8m).
This comprised cash of £16.3m (FY21: cash of £8.3m and a draw down of £7.5m against a term loan).
For the year ended 1 May 2022 the Group’s bank facilities comprised a revolving credit facility (RCF) of £22.5m, with an expiry date
of 30 September 2022. The RCF limit reduced to £20.0m in January 2022 and remained at this level until its expiry. From 10 June 2022
the Group’s bank facilities comprise an RCF of £30m expiring 30 November 2025.
The facility includes financial covenants in relation to the level of net debt to LTM EBITDA and “Fixed Charge Cover” or ratio of LTM EBITDA
prior to deducting rent and interest, to LTM rent and interest.
TheWorks.co.uk plc Annual Report and Accounts 2022116116
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
20. Borrowings
Accounting policy
Interest-bearing bank loans and overdrafts, loan notes and other loans are recognised in the balance sheet at amortised cost. Finance
charges associated with arranging non-equity funding are recognised in the income statement over the life of the facility. All other
borrowing costs are recognised in the income statement in accordance with the effective interest rate method. A summary of the Group’s
objectives, policies, procedures and strategies with regard to financial instruments and capital management can be found in Note 25.
At 1 May 2022 all borrowings were denominated in sterling (FY21: sterling).
FY22
£000
FY21
£000
Non-current liabilities
Lease liabilities 85,702 104,362
Non-current liabilities 85,702 104,362
Current liabilities
Secured bank loans — 7,500
Lease liabilities 25,434 31,552
Unamortised debt issue costs — (405)
Current liabilities 25,434 38,647
Reconciliation of borrowings to cash flows arising from financing activities
FY22
£000
FY21
£000
Borrowings at start of year (excluding overdrafts) 143,009 142,129
Changes from financing cash flows
Payment of lease liabilities (capital) (25,969) (14,327)
Payment of lease liabilities (interest) (4,500) (4,869)
Proceeds from loans and borrowings — 7,500
Repayment of bank borrowings (7,500) (10,000)
Payment of RCF fees — (619)
Total changes from financing cash flows (37,969) (22,315)
Other changes
Lease liability additions 3,634 18,593
Disposal of lease liabilities (2,340) (464)
The effect of changes in foreign exchange rates (120) (59)
Interest expense 4,922 5,125
Total other changes 6,096 23,195
Borrowings at end of year (excluding overdrafts) 111,136 143,009
Net debt reconciliation
FY22
£000
FY21
£000
Net debt (excluding unamortised debt costs)
RCF — 7,500
Cash and cash equivalents (16,280) (8,315)
Net bank cash (16,280) (815)
Non-IFRS 16 lease liabilities 485 766
Non-IFRS 16 net cash (15,795) (49)
IFRS 16 lease liabilities 110,651 135,148
Net debt including IFRS 16 lease liabilities 94,856 135,099
TheWorks.co.uk plc Annual Report and Accounts 2022 117
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
117
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
21. Trade and other payables
FY22
£000
FY21
£000
Current
Trade payables 20,091 15,309
Other tax and social security 2,792 194
Accrued expenses 13,075 10,685
Trade and other payables 35,958 26,188
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Group has financial
risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
Accrued expenses comprise various accrued property costs, payroll costs and other expenses, including £453k (FY21: £677k) of deferred
income in relation to the customer loyalty scheme. The increase in the balance from FY21 is due to an increase in the bonus accrual.
The Group has net US dollar denominated trade and other payables of £4.9m (FY21: £2.9m).
22. Provisions
Accounting policy
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are the best estimate of the expenditure required to settle the obligation at the end of the
reporting period, and are discounted to present value where the effect is material.
Dilapidations
£000
Total
£000
Balance as at 3 May 2021 718 718
Provisions made during the year 399 399
Provisions used during the year — —
Provisions released during the year — —
Balance as at 1 May 2022 1,117 1,117
Non-current 913 913
Current 204 204
Dilapidation provision
In accordance with IAS 37 Provisions, the Group recognises provisions for the cost of reinstating certain Group properties at the end
of their lease term, based on the conditions set out in the terms of the individual leases. The timing of the outflows will match the ends
of the relevant leases, which range from 1 to 14 years. The average remaining term of the estate is 3.7 years.
23. Defined contribution pension plans
Accounting policy
A defined contribution pension plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate
entity and will have no obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are
recognised as an expense in the profit and loss account in the periods during which services are rendered by employees.
The Group operates a defined contribution pension scheme. The pension cost charge for the period represents contributions payable
by the Group to the scheme and amounted to £777k (FY21: £643k).
At the end of the year contributions of £155k (FY21: £65k) were outstanding.
TheWorks.co.uk plc Annual Report and Accounts 2022118118
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
24. Share capital and share premium
Accounting policy
The following describes the nature and purpose of each reserve within equity:
•
Share premium account: Proceeds received in excess of the nominal value of shares issued, net of any transaction costs.
•
Hedging reserve: Cumulative gains and losses on hedging instruments deemed effective in cash flow hedges.
•
Merger reserve: Created in 2018 on the formation of TheWorks.co.uk plc, it represents the difference between the cost of the investment
in The Works Investment Limited (and its subsidiaries, The Works Stores Limited and The Works Online Limited) of £51,499,891 and the
nominal value of the ordinary shares issued in exchange of £109.
•
Share-based payment reserve: Represents the cumulative charges to income under IFRS 2 Share-based Payment on all share options
and schemes granted, net of share option exercises.
•
Retained earnings: All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
Ordinary shares are classified as equity.
FY22
Number
FY21
Number
Share capital
Allotted, called up and fully paid ordinary shares of 1p:
At the start of the period 62,500 62,500
Issued in the period — —
At the end of the period 62,500 62,500
FY22
£000
FY21
£000
Share capital
At the start of the period 625 625
Issued in the period — —
At the end of the period 625 625
Share premium
At the start of the period 28,322 28,322
Issued in the period — —
At the end of the period 28,322 28,322
25. Financial instruments
Accounting policy
Non-derivative financial assets
Non-derivative financial assets comprise trade and other receivables and cash and cash equivalents. The Group classifies all its non-
derivative financial assets as financial assets at amortised cost. Financial assets at amortised cost are initially measured at fair value plus
directly attributable transaction costs, except for trade and other receivables without a significant financing component that are initially
measured at transaction price. Subsequent to initial recognition, non-derivative financial assets are carried at amortised cost using the
effective interest method, subject to impairment.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is
‘credit impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred. The Group measures loss allowances at an amount equal to lifetime expected credit loss.
Cash and cash equivalents comprise cash in hand, at bank and on short-term deposit for less than three months. Bank overdrafts, within
borrowings, that are repayable on demand and form an integral part of the Group’s cash management are included as a component
of cash and cash equivalents for the purposes of the cash flow statement.
Non-derivative financial liabilities
Non-derivative financial liabilities comprise bank borrowings and trade and other payables. Non-derivative financial liabilities are initially
recognised at fair value, less any directly attributable transaction costs, and subsequently stated at amortised cost using the effective
interest method.
Derivative financial instruments
Derivative financial instruments are mandatorily categorised as fair value through profit or loss (FVTPL), except to the extent they are
part of a designated hedging relationship and classified as cash flow hedging instruments. The Group utilises foreign currency derivative
contracts to manage the foreign exchange risk on future US dollar denominated purchases.
Gains and losses in respect of foreign exchange derivative financial instruments that are not part of an effective hedging relationship
are recognised within cost of sales and net finance expense.
TheWorks.co.uk plc Annual Report and Accounts 2022 119
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
119
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
25. Financial instruments continued
Accounting policy continued
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative
is recognised in other comprehensive income (OCI) and accumulated in the hedging reserve. The effective portion of changes in the
fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on
a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised
immediately in profit or loss.
The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash
flow hedging relationships and applies a hedge ratio of 1:1. The change in fair value of the forward element of forward exchange contracts
(‘forward points’) is separately accounted for as a cost of hedging and recognised in the hedging reserve separately as costs of hedging.
When foreign exchange hedged forecast transactions subsequently result in the recognition of inventory, the amount accumulated in the
hedging reserve and the cost of hedging reserve is included directly in the initial cost of the inventory.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised,
then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that
has been accumulated in the hedging reserve remains in equity until it is included in the cost of inventory on its initial recognition.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve
and the cost of hedging reserve are immediately reclassified to profit or loss.
Fair value estimation
The techniques applied in determining the fair values of financial assets and liabilities are disclosed below.
Foreign currency
The consolidated financial statements are presented in pounds sterling, which is the functional currency of the Company.
Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange
prevailing on the dates of the transactions. The majority of currency transactions that are not in the functional currency of the trading
entity relate to inventory purchases. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement within cost of sales, except when deferred in other comprehensive income as qualifying cash flow hedges. Foreign currency
gains and losses are reported on a net basis.
The Group is exposed to foreign currency risk, most significantly to the US dollar as a result of sourcing certain products which are paid
for predominantly in US dollars. The Group hedges these exposures using forward foreign exchange contracts and hedge accounting
is applied when the requirements of IFRS 9 are met, which include that a forecast transaction must be ‘highly probable’. The Group has
applied judgement in assessing whether the forecast purchases remain ‘highly probable’.
The Group’s policy is that approximately 50% of the forecast purchase requirements are initially hedged, approximately 12 months prior,
with incremental hedges taken out over time, as the buying period approaches and therefore as certainty increases over the forecast
purchases. As a result of this progressive strategy, reducing the supply pipeline of inventory, should this occur, does not immediately
lead to over-hedging and the disqualification of ‘highly probable’. If the forecast transactions were no longer expected to occur, any
accumulated gain or loss on the hedging instruments would be immediately reclassified to profit or loss.
Financial risk management
The Board has overall responsibility for managing risks and uncertainties and these are reviewed on an ongoing basis. The principal
financial risks faced by the Group include market risk, currency risk, cash flow interest rate risk, credit risk and liquidity risk.
In order to manage the Group’s exposure to these risks, in particular the Group’s exposure to currency risk, the Group enters into forward
foreign currency contracts. No transactions in derivatives are undertaken for speculative purposes.
Further details of the Group’s approach to managing risk are included in the ‘Principal Risks and Uncertainties’ section of the Strategic
report and in the Corporate governance report.
(a) Market risk
The Group’s activities expose it to two types of market risk, being currency risk and cash flow interest rate risk. The Group’s policies for
managing currency risk and interest rate risk are set out below.
(i) Currency risk
The Group is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales,
purchases, receivables and borrowings are denominated. A significant proportion of the Group’s retail products are procured from
overseas suppliers in transactions denominated in US dollars.
The Group uses foreign currency derivative contracts and US dollar denominated cash balances to manage the foreign exchange risk
on US dollar denominated inventory purchases.
As described above, the Group takes a prudent, but flexible, approach to hedging the risk of exchange rate fluctuations. At 1 May 2022,
the Group held forward contracts with a nominal value of $30.0m (FY21: $43.2m), all with maturity dates of less than two years. These
contracts have an average forward rate of $1.3964 (FY21: $1.3144).
TheWorks.co.uk plc Annual Report and Accounts 2022120120
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
25. Financial instruments continued
Financial risk management continued
(a) Market risk continued
(i) Currency risk continued
Exposure to currency risk
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are
as follows:
Liabilities Assets
FY22
£000
FY21
£000
FY22
£000
FY21
£000
US dollar 4,905 2,878 980 3,793
Euro 454 767 3,092 1,415
Currency sensitivity analysis
The Group is exposed to the US dollar and, to a significantly lesser extent, the euro.
The following table details the Group’s sensitivity to a 10% increase or decrease in sterling against the relevant foreign currencies. 10%
represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign
currency rates. A positive number below indicates an increase in profit and other equity where sterling strengthens 10% against the
relevant currency. For a 10% weakening of sterling against the relevant currency, there would be a comparable impact on the profit and
other equity, and the balances below would be positive.
USD impact Euro impact
FY22
£000
FY21
£000
FY22
£000
FY21
£000
Profit/(loss) for the period 357 (83) (240) (59)
This is mainly attributable to the exposure outstanding on US dollar and euro cash, trade payables and other accruals in the Group at the
reporting date.
The sensitivity analysis above represents the inherent foreign exchange risk as at the year end, but is not reflective of the exposure, and
therefore the profit impact, to foreign currency exchange movements during the year.
(ii) Interest rate risk
The Group is also exposed to the effects of fluctuations in the interest rate on its banking facility. The sensitivity analysis below has been
determined based on an increase in the interest rate of 1.0% on the average cash balances throughout the year.
FY22
£000
FY21
£000
Variable rate instruments (100 bp increase) 123 56
Variable rate instruments (100 bp decrease) (123) (56)
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Group does not offer any credit to customers; therefore, the credit risk with respect to exposure to customers is low.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics. The Group defines counterparties as having similar characteristics if they are related entities.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings
assigned by international credit rating agencies.
The carrying amount of the financial assets recorded in the financial statements represents the Group’s and the Company’s exposure
to credit risk.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following tables detail the Group’s remaining contractual maturity for its financial assets and liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows, excluding interest, based on the earliest date on
which the Group can be required to pay.
TheWorks.co.uk plc Annual Report and Accounts 2022 121
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
121
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
25. Financial instruments continued
Contractual maturity of financial liabilities
Within 1 year
£000
1—5 years
£000
5+ years
£000
Total
£000
1 May 2022
Interest bearing — — — —
Non-interest bearing 32,917 913 — 33,830
Finance lease liability (undiscounted cash flows) 31,592 83,017 21,862 136,471
Derivative
Forward currency contracts — — — —
64,509 83,930 21,862 170,301
2 May 2021
Interest bearing 7,500 — — 7,500
Non-interest bearing 26,035 — — 26,035
Finance lease liability (undiscounted cash flows) 35,978 86,601 30,158 152,737
Derivative
Forward currency contracts 1,649 53 — 1,702
71,162 86,654 30,158 187,974
Hedge accounting
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management objectives
and strategy and to apply a qualitative and forward-looking approach to assessing hedge effectiveness.
The Group determines the existence of an economic relationship between the hedging instrument and the hedged item based
on the currency, amount and timing of their respective cash flows. The Group assesses whether the derivative designated in each
hedging relationship is expected to be, and has been, effective in offsetting cash flows of the hedged item using the hypothetical
derivative method.
In these hedge relationships, the main sources of ineffectiveness are:
•
the effect of counterparties and the Group’s own credit risk on the fair value of the forward foreign exchange contracts, which
is not reflected in the change in the fair value of the hedged cash flows attributable to the change in exchange rates; and
•
changes in the timing of the hedged transactions.
Fair value measurements
Financial instruments carried at fair value are measured by reference to the following fair value hierarchy, based on the degree to which
the fair value is observable:
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
•
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value under a Level 2 valuation method. All other financial instruments carried
at fair value are measured using the Level 1 valuation method.
There were no transfers between the levels during the current or prior year.
Derivative financial instruments
The fair value of derivative financial instruments at the balance sheet date is as follows:
FY22
£000
FY21
£000
Net derivative financial instruments
Foreign exchange contracts 2,393 (1,702)
TheWorks.co.uk plc Annual Report and Accounts 2022122122
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
25. Financial instruments continued
Classification of financial instruments
The table below shows the classification of financial assets and liabilities as at 1 May 2022.
The fair value of financial instruments has been assessed as approximating to their carrying value.
Mandatorily
at FVTPL
£000
Cash flow
hedging
instruments
£000
Financial
assets at
amortised
cost
£000
Other
financial
liabilities
£000
As at 1 May 2022
Financial assets measured at fair value
Derivative financial instruments — 2,393 — —
Financial assets not measured at fair value
Trade and other receivables — — 8,427 —
Cash and cash equivalents — — 16,280 —
Financial liabilities measured at fair value
Derivative financial instruments — — — —
Financial liabilities not measured at fair value
Unsecured bank loans — — — —
Lease liabilities — — — (111,136)
Trade and other payables — — — (35,958)
As at 1 May 2022 — 2,393 24,707 (147,094)
Mandatorily
at FVTPL
£000
Cash flow
hedging
instruments
£000
Financial
assets at
amortised
cost
£000
Other
financial
liabilities
£000
As at 2 May 2021
Financial assets measured at fair value
Derivative financial instruments — — — —
Financial assets not measured at fair value
Trade and other receivables — — 6,913 —
Cash and cash equivalents — — 8,315 —
Financial liabilities measured at fair value
Derivative financial instruments — (1,702) — —
Financial liabilities not measured at fair value
Unsecured bank loans — — — (7,500)
Lease liabilities — — — (135,914)
Trade and other payables — — — (26,188)
As at 2 May 2021 — (1,702) 15,228 (169,602)
TheWorks.co.uk plc Annual Report and Accounts 2022 123
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
123
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
26. Equity-settled share-based payment arrangements
Accounting policy
The Group operates an equity-settled share-based compensation plan.
The cost of the awards to employees is expensed to the income statement, together with a corresponding adjustment to equity, on
a straight-line basis over the vesting period of the award. The cost of awards to employees of subsidiary undertakings is recognised
as an increase in the investment in the subsidiary. The total income statement charge is based on the Company’s estimate of the number
of share awards that will eventually vest in accordance with the vesting conditions. The awards granted during FY22 include market-based
vesting conditions. At each balance sheet date, the Company revises its estimate of the number of awards that are expected to vest.
Any revision to estimates is recognised in the income statement, with a corresponding adjustment to equity.
During FY22, the Group had two (FY21: two) share-based payment schemes, which are described below.
TheWorks.co.uk Long Term Incentive Plan (LTIP)
Further details of the Group’s LTIP arrangements are included in the Directors’ remuneration report. The LTIP rules provide for the grant
of performance related and restricted awards.
The LTIP awards are subject to a three-year vesting period and will usually only vest following the satisfaction of performance conditions.
Vested shares will not be released until the end of an additional holding period of two years beginning on the vesting date. Performance
measures under the LTIP are based on financial measures. For FY22 the vesting conditions require three years’ service from the grant
date and the achievement of an EPS target and a share price target (FY21 awards: three years’ service from the grant date and the
achievement of an EPS target and a share price target).
Restricted stock awards have previously been granted to certain employees, with a three-year vesting period. Restricted share awards
are not subject to performance conditions.
Save As You Earn Scheme (SAYE)
A Save As You Earn Scheme is established which is a UK tax-qualified scheme under which eligible employees (including Directors) may
save up to a maximum monthly limit of £250 (as determined by the Remuneration Committee) over a period of three years. Participants
are granted an option to acquire shares at up to a 20% discount to the price as at the date of grant. The number of shares under option
is that which can be acquired at that price using savings made.
LTIP SAYE
Number of share options
Outstanding at 3 May 2021 2,595,915 1,376,686
Granted 1,085,105 1,209,189
Forfeited (36,664) (521,872)
Restricted stock awards granted 601,693 —
Outstanding at 1 May 2022 4,246,049 2,064,003
LTIP SAYE
Weighted average exercise price (£)
Outstanding at 3 May 2021 0.47 0.58
Granted 0.47 0.55
Forfeited 0.73 0.57
Restricted stock awards granted 0.59 —
Outstanding at 1 May 2022 0.48 0.56
Weighted average remaining contractual life (years) 3.65 1.30
The exercise prices of outstanding share options as at 1 May 2022 range from £0.21 to £0.81.
Expense recognised in the Income statement
FY22
£000
FY21
£000
LTIP – share-based payment expense 584 25
SAYE – share-based payment expense 67 56
Total IFRS 2 charges 651 81
27. Capital commitments
At 1 May 2022 the Group had capital commitments of £139k (FY21: £46k).
TheWorks.co.uk plc Annual Report and Accounts 2022124124
Notes to the consolidated financial statements continued
(Forming part of the financial statements)
28. Related party transactions
Identity of related parties with which the Group has transacted
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the Group and its associates are disclosed below.
Transactions with key management personnel
The compensation of key management personnel (including the Directors) is as follows:
FY22
£000
FY21
£000
Key management remuneration – including social security costs 2,077 1,965
Pension contributions 134 124
Long Term Incentive Plan – including social security costs 621 29
Total transactions with key management personnel 2,832 2,118
Further details on the compensation of key management personnel who are Directors are provided in the Group’s Directors’
remuneration report.
29. Subsidiary undertakings
The results of all subsidiary undertakings are included in the consolidated financial statements. The principal place of business and the
registered office addresses for the subsidiaries are the same as for the Company.
Company
Active/
dormant
Direct/
indirect control
Registered
number
Class of
shares held Ownership
The Works Investments Limited Active Direct 09073458 Ordinary 100%
The Works Stores Limited Active Indirect 06557400 Ordinary 100%
The Works Online Limited Dormant Indirect 08040244 Ordinary 100%
30. Post balance sheet events
On 10 June 2022, the Group renewed its bank facility, increasing the size of the committed facility to £30.0m, and extended the expiry
date to the end of November 2025, providing significant additional liquidity headroom.
The Strategic report on pages 1 to 46 and this Directors’ report have been drawn up and presented in accordance with, and in reliance
upon, applicable English company law and any liability of the Directors in connection with these reports shall be subject to the limitations
and restrictions provided by such law.
TheWorks.co.uk plc Annual Report and Accounts 2022 125
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
125
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Note
FY22
£000
FY21
£000
Fixed assets
Investment 34 57,537 57,279
57,537 57,279
Current assets
Deferred tax assets 35 — 341
Trade and other receivables 36 20 10
Loan receivable 37 — 13,847
20 14,198
Total assets 57,557 71,477
Current liabilities
Trade and other payables 38 916 455
Total liabilities 916 455
Net assets 56,641 71,022
Share capital 39 625 625
Share premium 39 28,322 28,322
Share-based payment reserve 2,252 1,546
Retained earnings 25,442 40,529
Total equity 56,641 71,022
These financial statements were approved by the Board of Directors on 23 September 2022 and were signed on its behalf by:
Steve Alldridge
Chief Financial Officer
Company registered number: 11325534
Company statement of financial position
As at 1 May 2022
TheWorks.co.uk plc Annual Report and Accounts 2022126
Share capital
£000
Share premium
£000
Share-based
payment reserve
£000
Retained
earnings
£000
Total equity
£000
Balance at 26 April 2020 625 28,322 1,489 11,562 41,998
Total comprehensive income for the period
Profit for the period — — — 28,967 28,967
Other comprehensive expense — — (24) — (24)
Total comprehensive (expense)/income for the period – – (24) 28,967 28,943
Transactions with owners of the Company
Share-based payment charge — — 81 — 81
Transactions with owners of the Company — — 81 — 81
Balance at 2 May 2021 625 28,322 1,546 40,529 71,022
Total comprehensive income for the period
Loss for the period — — — (15,087) (15,087)
Total comprehensive expense for the period — — — (15,087) (15,087)
Transactions with owners of the Company
Share-based payment charge — — 706 — 706
Transactions with owners of the Company — — 706 — 706
Balance at 1 May 2022 625 28,322 2,252 25,442 56,641
Company statement of changes in equity
TheWorks.co.uk plc Annual Report and Accounts 2022 127
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
31. Accounting policies
(a) Basis of preparation
The Company financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”). In preparing these financial statements, the Company applies the recognition, measurement and disclosure
requirements of UK-adopted international accounting standards (“Adopted IFRSs”), but makes amendments where necessary in order
to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
The financial statements have been prepared under the historical cost convention.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least
12 months from the date of issue of these financial statements. Accordingly, the financial statements have been prepared on a going
concern basis. Refer to Note 1(b)(i) for further information regarding the basis of preparation.
Principal accounting policies
The principal accounting policies set out below have been applied consistently to all periods presented in these financial statements.
New accounting standards
The Company has applied the following new standards and interpretations for the first time for the annual reporting period commencing
3 May 2021:
•
COVID-19 Related Rent Concessions (Amendments to IFRS 16)
•
Interest Rate Benchmark Reform: Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The adoption of the standards and interpretations listed above has not led to any changes to the Company’s accounting policies
or had any other material impact on the financial position or performance of the Company.
(b) Income statement
The Company made a loss after tax of £15.1m for the period relating to the impairment of the investment balance following the waiver
of an intercompany loan (FY21: profit of £29.0m). As permitted by Section 408 of the Companies Act 2006, the income statement of the
Company is not presented as part of the financial statements.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
•
cash flow statement and related notes;
•
comparative period reconciliations for share capital;
•
transactions with wholly owned subsidiaries;
•
capital management;
•
the effects of new but not yet effective IFRS; and
•
the compensation of key management personnel.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101
available in respect of the following disclosures:
•
IFRS 2 share-based payments in respect of Group-settled share-based payments.
(c) Key sources of estimation uncertainty
The preparation of financial statements requires the Company to make estimates and judgements that affect the application of policies
and reported amounts.
Critical judgements represent key decisions made by management in the application of the Company accounting policies. Where a
significant risk of materially different outcomes exists due to the requirement to make assumptions in arriving at a figure, this will represent
a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next
12 months are discussed below.
Key sources of estimation uncertainty which are material to the financial statements are described in the context of the matters to which
they relate, in the following note:
Description Note Page
Impairment of investments in subsidiaries 34 129
32. Employee costs
The Company has no employees other than the Board of Directors. Full details of Directors’ remuneration are set out in the Directors’
remuneration report.
Notes to the Company financial statements
TheWorks.co.uk plc Annual Report and Accounts 2022128
33. Dividends
Accounting policy
At the balance sheet date, dividends are only recognised as a liability if they are appropriately authorised and are no longer at the
discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.
No dividends were paid to shareholders during FY21 or FY22.
Dividend equivalents totalling £175k (FY21: £74k) were accrued in the year in relation to share-based long-term incentive schemes.
The Board has recommended the payment of a 2.4 pence per share final dividend in respect of FY22 (FY21: £Nil).
34. Investments in subsidiaries
Key source of estimation uncertainty
The carrying value of the investment in subsidiary undertakings is reviewed for impairment on an annual basis. The recoverable amount
is determined based on value in use. The value in use method requires the Group to determine appropriate assumptions (which are key
sources of estimation uncertainty) in relation to the growth rates of sales and gross margins, operating costs, future capital maintenance
expenditure, long-term growth rates and the pre-tax discount rate used to discount the assumed cash flows to present value. Estimation
uncertainty arises due to changing economic and market factors.
FY22
£000
At 3 May 2021 57,279
Additions 14,105
Impairment charge (13,847)
At 1 May 2022 57,537
Investments in subsidiaries represent the Company’s investment in its subsidiary, The Works Investments Limited.
Loan waiver
The intercompany loan balance of £13.8m was waived in full in FY22, resulting in an addition to the investment balance of £13.8m during
the period.
Impairment of investments in subsidiaries
The Company evaluates its investments in subsidiaries annually for any indicators of impairment. The Company considers the relationship
between its market capitalisation and the carrying value of its investments, among other factors, when reviewing for indicators
of impairment.
As described above, key assumptions for the value in use calculation include those regarding the discount rate, long-term growth
rates, and expected trading performance (sales, gross margin and operating costs). In FY20 the Company recognised an impairment
charge of £32.7m in respect of its investment in The Works Investments Limited; £23.5m of this impairment was reversed in the prior year
financial statements.
The recoverable amount of the investment in The Works Investments Limited has been re-evaluated based on the Group’s latest forecast
post-tax cash flows included in its Base Case plan (see Note 1(b)(i)) covering the Projection Period, which have regard to historical
performance and knowledge of the current market, together with the Group’s views on the future achievable growth and the impact
of committed cash flows. The cash flows include estimates of ongoing capital expenditure required to maintain the store network, but
exclude any significant growth capital initiatives. Severe weather has been considered when modelling forecasts and it is not deemed to
have a material affect on the projected numbers in the impairment review.
Cash flows beyond the Projection Period are extrapolated using an estimated average long-term growth rate of 2.0%.
Management estimates discount rates that reflect the current market assessment of the time value of money and the risks specific to the
Group. The pre-tax discount rate is derived from the Group’s pre-tax weighted average cost of capital (WACC) which has been calculated
using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium,
forecasting risk premium and risk adjustment (beta). The rate used to discount the forecast cash flows is 17.88% (FY21: 16.78%).
As a result of this analysis, an impairment charge of £13.8m has been recognised during FY22 relating to the investment addition in the
year due to the intercompany loan waiver.
Sensitivity analysis
As disclosed in the accounting policies note, the cash flows used within the impairment model, the long-term growth rate and the discount
rate are sources of estimation uncertainty and changes in these assumptions could lead to further impairment.
Management has performed sensitivity analysis on the assumptions in the impairment model using reasonably possible changes in these
key assumptions. Reasonably possible changes to these key assumptions, including a 200 basis point increase in the pre-tax discount
rate, a 200 basis point reduction in the long-term growth rate, or a 5% reduction in cash flows from the Base Case plan would not result
in a material increase to the impairment charge. In the event that all three were to occur simultaneously, there would not be a material
increase to the impairment charge.
TheWorks.co.uk plc Annual Report and Accounts 2022 129
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Notes to the Company financial statements continued
35. Deferred tax asset
Accounting policy
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax is provided on temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences
are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax is recognised to the extent that it is probable that future taxable profits will be available against which temporary
differences can be utilised.
FY22
£000
FY21
£000
Deferred tax asset — 341
— 341
Deferred tax assets of £341k in FY21 related to temporary differences arising from trading.
36. Trade receivables
FY22
£000
FY21
£000
Prepayments and accrued income 20 10
20 10
37. Loans receivable
Accounting policy
Loans to subsidiaries are initially recorded at fair value. After initial recognition, they are measured at amortised cost, less any impairment
losses. The loans are non-interest bearing and repayable on demand. The provision for impairment of loans receivable is based on lifetime
expected credit losses. Lifetime expected credit losses are reassessed at each reporting date and any movement in the provision is
recognised in the Company income statement.
£000
At 26 April 2020 28,500
Loans waived (14,653)
At 2 May 2021 13,847
Loans waived (13,847)
At 1 May 2022 —
The loan balance of £13,847k in FY21 related to a non-interest-bearing intercompany loan repayable on demand by subsidiary
undertaking The Works Investments Limited. The full amount was waived during the year as part of a rationalisation of various
intercompany balances.
38. Trade payables
FY22
£000
FY21
£000
Non-trade payables and accrued expenses 208 185
Accruals 92 246
Amounts owed to Group undertakings 616 24
916 455
Amounts owed to Group undertakings are non-interest bearing and repayable on demand.
TheWorks.co.uk plc Annual Report and Accounts 2022130
39. Share capital and share premium
Accounting policy
The following describes the nature and purpose of each reserve within equity:
•
Share premium account: Proceeds received in excess of the nominal value of shares issued, net of any transaction costs.
•
Share-based payment reserve: Represents the cumulative charges to income under IFRS 2 Share-based Payment on all share options
and schemes granted, net of share option exercises.
•
Retained earnings: All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
FY22
Number
FY21
Number
Share capital
Allotted, called up and fully paid ordinary shares of 1p:
At the start of the period 62,500 62,500
Issued in the period — —
At the end of the period 62,500 62,500
FY22
£000
FY21
£000
Share capital
At the start of the period 625 625
Issued in the period — —
At the end of the period 625 625
Share premium
At the start of the period 28,322 28,322
Issued in the period — —
At the end of the period 28,322 28,322
40. Equity-settled share-based payment arrangements
Accounting policy
The Group operates an equity-settled share-based compensation plan.
The cost of the awards to employees is expensed to the income statement, together with a corresponding adjustment to equity, on
a straight-line basis over the vesting period of the award. The cost of awards to employees of subsidiary undertakings is recognised as
an increase in the investment in the subsidiary. The total income statement charge is based on the Company’s estimate of the number
of share awards that will eventually vest in accordance with the vesting conditions. The awards granted during FY22 include market-based
vesting conditions. At each balance sheet date, the Company revises its estimate of the number of awards that are expected to vest.
Any revision to estimates is recognised in the income statement, with a corresponding adjustment to equity.
During the period, the Company had two (FY21: two) share-based payment schemes, which are described below.
TheWorks.co.uk Long Term Incentive Plan (LTIP)
Further details of the Group’s LTIP arrangements are included in the Directors’ remuneration report. The LTIP rules provide for the grant
of performance related and restricted awards.
The LTIP awards are subject to a three-year vesting period and will usually only vest following the satisfaction of performance conditions.
Vested shares will not be released until the end of an additional holding period of two years beginning on the vesting date. Performance
measures under the LTIP are based on financial measures. For FY22 the vesting conditions require three years’ service from the grant
date and the achievement of an EPS target, and a share price target (FY21 awards: three years’ service from the grant date and the
achievement of an EPS target, and a share price target).
Restricted stock awards have previously been granted to certain employees, with a three-year vesting period. Restricted share awards
are not subject to performance conditions.
TheWorks.co.uk plc Annual Report and Accounts 2022 131
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
40. Equity-settled share-based payment arrangements continued
Save As You Earn Scheme (SAYE)
A Save As You Earn Scheme is established which is a UK tax-qualified scheme under which eligible employees (including Directors) may
save up to a maximum monthly limit of £250 (as determined by the Remuneration Committee) over a period of three years. Participants
are granted an option to acquire shares at up to a 20% discount to the price as at the date of grant. The number of shares under option
is that which can be acquired at that price using savings made.
For more information, refer to Note 26.
Expense recognised in the Company income statement
FY22
£000
FY21
£000
Share-based payment expenses
Expense/(credit) recognised in the Company income statement 396 (5)
Expense recognised in the subsidiary income statement 310 86
Total IFRS 2 charges recognised in the Group income statement 706 81
41. Related party transactions
FY22
£000
FY21
£000
Loans receivable from subsidiary undertaking The Works Investments Limited — 13,847
The Works Investments Limited is a 100% owned subsidiary, with a principal place of business and registered office address the same
as that of the Company. The loan is non-interest bearing and repayable on demand.
Notes to the Company financial statements continued
TheWorks.co.uk plc Annual Report and Accounts 2022132
Corporate Brokers
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
Tel: 020 7597 4000
Legal Advisers
Squire Patton Boggs (UK) LLP
6 Wellington Place
Leeds
LS1 4AP
Tel: 0113 284 7000
Auditor
KPMG LLP
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
Tel: 0121 740 3516
Principal Bankers
HSBC Bank Plc
Birmingham Corporate Centre
6th Floor, 120 Edmund Street
Birmingham
B3 2QZ
Tel: 03455 852 569
Registrars
Equiniti Limited
Aspect House, Spencer Road
Lancing
West Sussex
BN99 6DA
Financial Public Relations and Investor Relations
Sanctuary Counsel
5-8 The Sanctuary
Westminster
London
SW1P 3JS
Tel: 0207 340 0395
Registered Office
Boldmere House, Faraday Avenue
Hams Hall Distribution Park
Coleshill
Birmingham
B46 1AL
Tel: 0121 313 6050
Advisers and contacts
The Works commitment to environmental issues is reflected in this
Annual Report, which has been printed on Symbol Freelife Satin, an
FSC
®
certified material.
This document was printed by L&S using its environmental
print technology, which minimises the impact of printing on the
environment, with 99% of dry waste diverted from landfill. Both the
printer and the paper mill are registered to ISO 14001.
Boldmere House
Faraday Avenue
Hams Hall Distribution Park
Coleshill
Birmingham B46 1AL
THE
WORKS
TheWorks.co.uk plc Annual Report and Accounts 2022
TheWorks.co.uk plc Annual Report and Accounts 2022